For the third time, Egyptian officials have postponed the reopening of the Cairo stock exchange. It was closed on January 27 after having fallen 20% in a few days. It’s now scheduled to reopen on Wednesday.
Cairo / Dhaka stock markets
The Dhaka stock exchange was in a huge bubble last year, but now is in a full scale stock market crash. It has fallen over 30% in the last few weeks, including an additional 7.27% dive on Sunday, Feb 13.
I’d like to quote some excerpts from the Reuters article describing Sunday’s dive:
“DHAKA (Reuters) – Hundreds of Bangladeshi small investors, angry at a new plunge in share prices, set fire to tires and pelted police with bricks on Sunday outside the stock exchange and demanded the resignation of the finance minister.Police with batons dispersed the protesters in pitched battles that snarled traffic for hours.
The country’s main Dhaka Stock Exchange General Index dived by more than 474.77 points or 7.27 percent to 6052.41 on Sunday, the steepest one-day fall since January 20.
“Who is to blame for the continuing fall of share prices? Why haven’t they been found and punished?” shouted Shafiqur Rahman, a small investor.
Demonstrators called for the resignation of Finance Minister Abul Maal Abdul Muhith.
“He assured us that the market will see an uptrend this week,” said investor Rakibul Haq. “It makes me so frustrated and angry that this has not happened.”
Prime Minister Sheikh Hasina last week asked the relevant authorities to take immediate steps to stabilize markets, with about 3.3 million people, mostly small-time investors new to stock trading, relying on it to supplement meager incomes.
Share prices nearly doubled in 2010, encouraging new investors into the market. …
Hasina and her rival Begum Khaleda Zia, a former prime minister and contender in parliamentary elections due by the end of 2013, accuse each other of prompting the price declines.
“They (Khaleda and her allies) are fuelling the unrest in the stock market, trying to cause greater anarchy and make gains out of it,” Hasina told parliament last week.
Khaleda said at the weekend that the slide in the bourses was further proof that the government was incapable of managing anything.”
What I think is absolutely incredible about this story is that nobody seems to have the vaguest idea what’s going on, even though it’s completely obvious. Stock prices doubled last year, so of course it was a bubble, and of course it’s in a full-fledged crash, and yet none of these people, including the supposed experts at Reuters, seem to grasp that simple concept. They keep talking ridiculous nonsense about politicians doing this or that, as if politicians could ever prevent a stock market crash.
The same insane mood is prevalent on Wall Street today. Those who follow my my “Dow Jones historical page” are aware that the DJIA is just shy of 200% of the long-term trend value, meaning that, for the first time since 2008, stocks are overpriced by a factor of 2. Furthermore, stocks have been overpriced since 1995, so by the Law of Mean Reversion, stock prices are going to fall to Dow 3000 or below, and stay there for many years. People on Wall Street are as oblivious to all this, just like officials in Dhaka.
Here’s a graph of the S&P 500 price/earnings index from 1871 to 2010:
S&P 500 Price/Earnings Ratio (P/E1) 1871 to August 2010
Anyone who can’t see a stock market bubble since 1995 is blind. By the Law of Mean Reversion, P/E ratios (also called “valuations”) will fall to lower than the 5-6 range to which they’ve fallen three times in the last century, most recently in 1982.
Perhaps the thing that shocks and infuriates me the most is to see managers from investment firms go on to CNBC or Bloomberg TV and simply lie about valuations. I won’t name names here, but I have in the past, ( here and here.) And I’m 99% certain that these people, or their PR departments, have seen these reports, but I’ve never heard from anyone to explain why I’m wrong, and ask me to post a correction. They undoubtedly earn 7-digit salaries. Are they crooks or just incompetent? I report, you decide.
During the 2005 to early 2007 period, I was writing about a credit bubble, a real estate bubble, and a stock market bubble, and about lying and fraud that was going on. I was called a psychopath, but today the credit and real estate bubbles are finally acknowledged, as is the massive generational fraud. The stock market also took a dive, but now it’s going way up into bubble territory again, and the people on Wall Street are the same kinds of dim-witted crooks that are selling stocks to gullible investors in Dhaka.
When I was growing up in the 1950s, my parents and teachers would tell me how “experts” in the 1930s kept predicting that the stock market would go up again. I didn’t understand then, but I certainly understand now. The criminal activity going on in Washington and on Wall Street was the same in the 1930s decade as it has been in the 2000s decade, and the results will be just as devastating, if not more so.
Calling all geeks: Be sure to watch Jeopardy! on television this week. On Monday-Wednesday, February 14-16, one of the contestants will be the IBM Watson supercomputer. It should be a lot of fun. See “27-Dec-10 News — IBM vs Jeopardy! brings robotic warfare and the Singularity closer” for more information.
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