You would think that the simultaneous crashing of all of the largest stock markets around the world would be very big news. ASIDE: Following the low reached on Oct 24, 2007, resulting from lowering home prices and spiking oil prices, the end of October saw good earnings reports from America’s businesses AND another rate cut from the Federal Reserve, that drove the market up to a local high on Oct 31, 2007 given it fell back sharply the next trading day. Note, from Chart 8, this high was not as high as the market high on Oct 10, and, in fact, is about as high as what I identified as the Left Shoulder in the previous Aside.
Back On Point: There is no good news any more other than corporate earnings, they still seem to be strong, except in the financial sector; only because the full impact of rising oil prices have not been felt yet. On Nov 1, 2007, the bears took back over with news of surging oil prices, the emerging crisis in the credit market, and the housing sector collapsing growing. All of these factors conspire to push the stock market, and America’s hopes along with it, up for the next 15 days, until Dec 15, 2007 when the inflation report came out that wiped out all of the good feelings and sent the market crashing down again.
The economy is now all about the housing market, the stock market, and the credit market; it is clear to all now the former has collapsed, it is just dawning on those in the know that the latter is going to collapse, and the stock market is finally acknowledging that fact. POINT: The pressure on the credit market kept increasing as defaults kept rising and bank failures began to rise among the weaker institutions; the largest firms still had enough assets and power to find wiggle room to stay afloat or find buyers, like Countrywide seemed to be doing. From this point until May 2008, the stock market, and America moved sideways, waiting for something to happen.
Also, on Jan 24, the Fed cut interest rates yet again and that, along with more good earnings reports, stopped the market from tumbling even further. In April 2008, America, especially those invested in the stock market are looking for any good news, and when they hear it, stock prices soar. On the whole, the market reacted more positively than it did negatively, even though there was a huge cancer eating away at America’s underbelly. Now everybody notices this stock is increasing and lots of people start buying the stock (lots of positive feedback) and the price skyrockets.
The fall of Lehman Bros, was the Knickerbocker Trust Company of the Panic of 1907, or the Philadelphia and Reading Railroad of the Depression of 1893, or the Vienna stock market crash of the Long Depression of 1873. Collapsed, because they were the first large institution to actually value their portfolio to market and thereby reduce their asset value well below their liabilities, the cat was finally out of the bag and all eyes turned toward the rest of Wall Street, who, in turn, could not stand the scrutiny.