What Factors Caused the 2008 Financial Crisis
(Example January 2009 Just After Financial Crisis)
The financial crisis is nothing new a crisis occurs every 20 years or so where some event occurs to cause a correction in the markets and widespread panic to investors. The recent Credit Crisis is different only in the fact that the pullback was so rapid and volatile. The SP-500 has pulled back to the 2003 lows in 3 months. When the tech bubble burst in 2000, it took three years for that pullback to happen.
Banking System Failures
Massive failures in the banking systems and a lack of regulation has largely been attributed as the main cause, of the domino effect.
A severe drop in demand occurred because of the financial crisis; people are already in debt, and cannot finance new debt; therefore, they are reducing their spending.
Increase in unemployment: as demand reduces, so we need fewer jobs to make the products that nobody wants anymore.
Developed World Debt
Developed world Debt: the developed world is taking on too much debt, the developed world lead by the US is taking on a lot of debt to create a stimulus package, to kick start the economy, and create jobs.
Stock Market Volatility
Market Volatility: Stocks and shares have become very volatile (this happens when people get too emotional), and have nosedived, to below the 2003 crash.
Continued Political unrest in the usual hotspots.
— Middle East (affecting Oil Prices)
— Terrorism (affecting Oil Prices)
— Africa / North Korea / Iran
What Happened in the Stock Market
Here you can see a chart with “trend lines” that help us view the direction of the market and when the market breaks its current trend. You will learn more about Drawing Trendlines in a future section.
Interesting to note that the SP-500 gave us a warning of the violent downturn in July 2008.
What Happened in Sub-industries
The key point here, as you can see from this table, is, no matter what is happening (within reason) in the marketplace, there are always winners and losers.
In the height of this recession, you can see below, Music and Video stores, increase, on average, 32.78% in the last four weeks.
This was followed closely by Non-Metallic Mining, Semiconductors, and Long-Term Care Facilities and toy stores.
People still have the need to spend. Although they seem to be spending on smaller ticket items, rather than a 42″ plasma TV, they are renting DVDs or buying Music. Or spending money in Toy Stores / Hobby Stores (the children’s toys are always the last thing to be axed in a recession, “parents protecting the children.”
Looking at the best industries, and examining the leaders is always a good source of future winners on the stock market.
Make up your own mind what the reasons are for these industries to be performing well; however, the point is, “they are performing well.”
Inside Job: Financial Crisis Movie
The Best Movie About Wall Street Ever Made
Academy Award-winning documentary and, for me, the best movie on the financial crisis made. With high profile interviewees and a fast-paced, gripping narration by Matt Damon, this film explains what happened leading up to the financial crisis and the level of fear and greed. High profile interviews and great cinematography wrapped up in a gripping true story.
I have watched this movie three times and plan to do so again; this is not some boring documentary, this is a good movie in its own right. This is a definite must-see and is easily the best movie on the list.
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