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Blood On Wall Street: DJI Down 300 Points In Morning Trading. 300 More To Come This Afternoon?

November 6th, 2008 Leave a comment Go to comments
Sad Markets

Sad Markets

Following falls in far Eastern markets with the Nikkei down 6.2% and in Europe with the FTSE down 5.7% on the day, the Dow Jones Industrial index has fallen over 300 points in morning trading, representing a 3%+ drop on the day.

The Dow has suffered a false Bull-bounce over the last ten days or so following the bank bail outs worldwide. This mini-bubble was bound to burst. It was a little human greed combined with a lot of human ignorance that led to this bounce – and not a small amount of false “talking the market up” on behalf of bankers and politicians.

I actually had a risk manager from a major investment bank in London tell me the other day we had a “responsibility” to talk the markets up. A risk manager? Talking the markets up? This shows just how incredibly deep the ostrich and lemming tendencies in the investment industries have become. The job of a risk manager is to assess risk, not to “talk markets up”. I told him that in his risk management decisions he needed to factor in the DJI being at around the 5,000 to 7,500 level by Christmas and he nearly choked.

He would have been much wiser to go back and recalculate his banks balance sheet exposures if those levels were reached but I doubt he did. Maybe his will be one of the next banks to be “consolidated” or “partly nationalised”.

Another 300 points off the Dow this afternoon will bring it into line with other markets and bring it back nearer to the short term trend lines driving investor behaviour. It won’t drop them low enough to meet those trends but it will point them in the right direction. Expect more blood on wall street next week.

I stick to my forecast that before Christmas the DJI will be trading in the 5,000 – 7,500 range on the upside. It’s just a matter of how quickly it gets there.

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