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The Greatest Crash In History Revisited
Submitted by Pater Tenebrarum via Acting-Man blog,
Sometimes It Doesn’t Pay to Catch a Falling Knife …
We like to think that a contrarian investment approach works best in the long term. Contrarian does not necessarily mean that one simply tries to fight every trend. It is more about attempting to recognize when a trend has gone too far. In practice this is often more difficult than in theory. The theory is simple enough: buy low, sell high. However, it is nigh impossible to recognize turning points with precision. So a contrarian style often forces one to be patient, and to accept that one will frequently both buy and sell too early.
One way of dealing with this problem is to spread one’s purchases and sales out over time. We did this with Japan, to name an example. In “Reconsidering Japan”, which turned out to be a well-timed post, we made the case for Japanese stocks (warning: we have our share of decidedly less well-timed posts). We didn’t know at the time that a bull market would be set into motion by what we ultimately consider a catastrophic economic policy, we only knew that the market was cheap. Our own approach was to buy in small sizes over a long time period. It took a lot of patience, as the market simply sat and sat there – the rallies never amounted to much. We felt though that the market represented a contrarian opportunity. We have occasionally mentioned similar opportunities in the past, such as e.g. Greece and even China. As we have pointed out a few times, economic fundamentals and stock market performance are often two different cups of tea. Usually we tend to be “early”, but this doesn’t matter if an idea ultimately pans out (gold investors take heart).
There is however one market that has defied contrarians to such an extent that one wonders what the hell happened. Shortly after the bail-out, when we first wrote about the enormous decline in the Cyprus General Index, we did so because at the time it represented the greatest stock market crash in history by far (see: “The Greatest Collapse in History” for details). We also noted that Cyprus was in a very bad position, referring to it as “Iceland without the fish” and a “disaster zone” (which it was/is). The 98% decline in its stock market at the time might have led one to suspect that the place had been hit by an asteroid. Instead it had been hit by the EU, which turned out to be almost as bad, at least financially. We later posted a brief update on the Cypriot disaster area and noted that the market had apparently simply perished (see: “Cyprus – A Stock Market Dies”).
Believe it or not, Cyprus as such still seems to be standing. Here is a recent photograph of the Limassol sea front in Southern Cyprus:
Limassol – nope, no signs of an asteroid strike or a nuclear explosion visible.
Photo credit: P. Matanski
We commented on this oddity as follows:
“The stock market of Cyprus is – so far anyway – different. We are keeping an eye on the chart of the Cyprus General index, because its decline was, as far as we are aware, the biggest decline of a stock market index in history. It fell from a high of 5,500 points to a low of just 85 points, a loss of over 98%. This means that the market lost another 85% after it had already fallen by 90% – an unprecedented massacre. It is perhaps appropriate that since then, the market seems to have almost literally expired. Its chart currently looks like the EKG of a recently deceased patient. We’re not sure what this means, except to say that contrary to past major market crashes elsewhere, this one has so far clearly not represented a buying opportunity. A very curious development indeed.”
We didn’t realize at the time that excitement would soon return to the stock market of Cyprus. It suffered yet another crash a few months later, plunging by 86% in a single day in September 2013. This is another first: a stock market that has plunged 98% from its high spends a few months drifting sideways to lower with almost no movement, and then crashes by another 86% in just one day. So the biggest market decline ever was followed by the biggest single day crash ever. In this case we can really say that “strong support at zero” is very close by now.
Revisiting the Disaster Zone (a.k.a. Iceland Without the Fish):
We don’t know for sure if the Cypriot stock market finally represents a good investment opportunity, but here is an updated chart. We were unable to find the Cyprus General Index chart (it may have been discontinued), but luckily Dow Jones has produced a total market chart for Cyprus, which serves as a suitable replacement. We are using a log chart as one would simply not see the aforementioned 86% one day crash of September 2013 on a linear chart:
A long-term log chart of the DJ Cyprus Total Market Index in euro terms (there is a dollar-denominated version available as well) – note the “crash after the crash” in 2013 – click to enlarge.
The DJ Cyprus Total Market Index is at present down 99.71% from its all time high made in 2007, so we would say it is definitely the most oversold stock market in the world in all of history. From 100 euro invested at the peak, a mere 29 cents are left.
Let us briefly ponder the mathematics of this wipe-out: when the market was down by 90%, it fell by another 50% at which point it was down 95% from the high. Thereafter, it fell by another 50%, ending down 97.5% from the high. Then it fell by another 50%, at which point it was down 98.75% from the high. Then it fell by 50% again and was down 99.375%. Surely this was bad enough? Nope…it then fell by yet another 50%, landing at 99.6875% down from its 2007 high. Unfortunately, the low was still not quite in yet at that juncture.
As noted above, the decline was punctuated by a one day crash of 86% in late 2013. What has so far been the low point was recorded in the wake of this (3.87 points, or down 99.761% from the 2007 peak). Sometimes the joys of euro area membership can indeed be dubious. Maybe this is what Mario Draghi has in mind when he lectures us on the dangers of deflation?
Amazingly, although the market bounced after its most recent crash to an interim high of about 8.5 points – up an impressive 120% from the crash low – it has since then drifted lower again for months on end, once again losing almost 50% of its value in the process. Here is a linear close-up of the action since the September 2013 crash low:
After the crash of September 2013: a 120% rally, followed by another severe bear market.
We will forward what might well turn out to be a daring theory: given that Cyprus still appears to be in one piece (in a manner of speaking, anyway), it may actually be time to throw a euro or two at its stock market. We admit that even a market trading at 4.6 points (from a former peak of 1,620) can still fall by half, and then fall by half again. And again. After all, this seems to be what this market does best. Seriously though, the above mentioned strong chart support at zero really is quite close. Worst has already come to worst, and it is increasingly hard to see what this market isn’t discounting at this point.
Almost regardless of the fundamental backdrop (which admittedly has its flaws, to put it mildly) there seems to be an interesting risk-reward proposition here. Imagine investing 100 bucks in an index basket. If the market halves again twice in succession, you will have lost 75 bucks. If an asteroid does strike after all, you will have lost 100 bucks (actually, in this case, it may take two asteroid strikes. At least one seems to be in the market already). If the market ever gets back to its former highs (this may of course never happen, but bear with us), your 100 bucks will have become about 34,500 bucks. Now that would be a return to write home about.
Conclusion:
This collapse is truly one for the history books. In many stock markets trading was suspended during war time, so theoretically there might have been even worse situations, but this is just guess work. To our knowledge nothing like this has ever happened anywhere in peace time. Assuming that Cyprus will continue to exist, it may finally be time to invest in this train wreck.
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The greatest crash not for long!
We can totally pull this off!
Sharks already there.....
http://www.globalbankingandfinance.com/ackermann-takes-helm-of-cyprus-biggest-bank/
Nov 21, 2014
NICOSIA, Cyprus (AP) — Former Deutsche Bank chief Josef Ackermann has been named the new chairman of bailed-out Cyprus’ biggest bank.
The shareholders’ and board votes Thursday come after the Bank of Cyprus passed a European in-depth review of its finances last month. The bank had earlier bolstered its capital base by raising 1 billion euros ($1.25 billion).
U.S. billionaire Wilbur Ross, who led a group of investors in pouring tens of millions into the bank, was elected vice chairman. Russian Vladimir Strzhalkovskiy stays on also as vice chairman.
For those who have prepared, crashes will have limited effect. Trouble comes and goes...
Disconnect while you still have good choices.
Making sure you have rust proof water, food and real money, will go a long way to insulate yourself from the rising tide of disaster.
In view of what the pundits are showing that lies ahead, wouldn't it be prudent to make sure you have hedged accordingly?
DaddyO
i wish tylers would stop overusing the word crash when it clearly isnt in 90% of the times used.
Surely it's got to be a buy @ this level.
I'm all in!
Of course! This time really is different.
Perhaps the financial attack on Cyprus was to hit Russia. That battle has not ended and I for one would not risk investing in it.
Can you boiler room pump-n-dump an entire country? I guess the answer is yes.
What I take from this article: Wherever it becomes unsafe to store ill-gotten gains, whether it be by theft, corruption or outright murder, you don't want to invest there any more.
USA is still safe.
Which only goes to prove that everything is relative.
So when does this happen in the USSA? About time homes crach again and fuck the back stopping. More whiners being bred.
I went into manufacturing participation trophies in the 90's.....made a damn fortune.
I'm now into Common Core testing.....trust me.....it adds up.
Now thats funny. Stupidity of the many leads to fantastic wealth for the few.
The revolution against tyranny begins with a single smoke. Thumb your nose at their control. Twitter #onecigaretterevolution.
Travel west from Limassol to Paphos and take a nice long look at all of the half finished buildings and empty apartment blocks. Yeah, investing in Cyprus looks like a fucking great idea. They don't have any natural resources either - even better!!
Lol.
Cyprus is now just a rock, surrounded by water, into which no investments or money will be poured.
They still have tourism. Could be a retirement destination. Cyprus is worth more than zero.
"Strong support at zero," LOL.
Would you change your mind if you traveled east from Paphos to Limassol?
You could try it, if you don't mind driving towards Israel with the sun in your eyes.
Err, investors in Chinese, Russian, Egyptian and many other stock markets around the worlds have suffered total 100% losses over the course of history, so a 99.6875% decline is not particularly special or impressive.
Five Facts About Crony Profits from Food Stamps
http://truthstreammedia.com/five-facts-about-the-crony-interest-in-food-...
TYler, if I make as much as I think I will in the next 30 minutes, I am sending you $50 donation for your first round of drinks tonight.
Nice island for a holiday but it's a hotbed of property fraud, normally British conmen conning British citizens (of-plan most of the time) because as we all know -
You can't lose money on properdeeeee, it only ever goes up!
Nice island for a holiday but it's a hotbed of property fraud, normally British conmen conning British citizens (of-plan most of the time) because as we all know -
You can't lose money on properdeeeee, it only ever goes up!
Yea, but at least those losses are in Euros!
So what you're saying is if I skip lunch today I could theoretically become one of the largest stockholders in Cyprus?
And it's gone... Almost, at least.
The only time the Cypriots will really "own" anything again is when the Turks attack them because of their oil and gas exploration. They will own that 100% as the EU won't do anything but put up a stern protest at the UN. Only then will the Cypriots realize they were totally played.
I loved living there but they have been raped for thousands of years and it's not going to stop with a measly little banking meltdown and they have no ability to fight.
What happened in Cyprus? Was it the Africans?
Many rich Russians had billions parked in the Cypriot banks. The Cypriot banks loaned out the money and reated a housing bubble that put the sub-prime debacle of the USA into shame. The Cypriot banks went bust and the EU was not willing to bail Cyprus out like they did with Greece, instead chose to do a massive haircut on Russian savings. The Russians were given worthless Cyrpus bank shares and then (under US pressure) they decided to re-capitalize the banks by bringing in Wilbur Ross (Wall Street private equity financier)
The American neo-cons and Wall Street banksters are willing to do anything to harm Russia. Cyprus was only one of the recent battlegrounds.
I know all this, because I am Cypriot myself.
Take the $.29 and invest it in a hedge fund; in about 50,000 years you'll probably break even and from there, it's "to the moon, Alice"...
I can't make out your avatar pic, FIAT. Is that a two-headed puppet?
This times the winner!
C'moooooon lucky seven - HAAAAA!
oversold
This is not that hard to figure out. The Cyprus market vaporized and is the template for the rest of the world. It's coming, the question is when.
Does this mean Greece is going to default?
You mean it's not already???
Is the lesson here that markets are totally detached from reality? If that's the case, the most important lesson of the century.
btfd
The lesson here is that the regular investor in the EU is a mouse admidst a herd of stampeding central bank elephants.
I liked this 12 minute long video on the history of Cyprus having its economy destroyed by the banksters, after the leverage of the Euro enabled those ENFORCED FRAUDS to bat Cyprus out of the ball park that it used to be in, merely a decade ago.
http://www.vimeo.com/64641714#
Cyprus crisis: The road to the March Eurogroup
The Cyprus story reminds me a little
of the MF Global story back in 2011.
"... 2 major events that people should be be paying attention to are MF global and Cyprus deposit confiscations because they both have changed the basic rules. MF Global changed the rule that investments were safe, and Cyprus changed the rules that money in the bank was safe. ..."
The monetary system is a state religion
which is more and more obviously run
by criminally insane, religious "nuts."
Making "money" inside of the established systems is the paradoxical result of successfully taking advantage of established systems of organized lies operating robberies, in the short-term, as the "best" an individual "regular investor" can do, while they are stuck inside an entrenched pyramid scheme that is driving irreconcilable social polarization and even worse irreparable destruction of the natural world.
As several other comments previously already pointed out, "the greatest crash in history" is coming to a theater near you ... working its way in from the periphery to the center. The basic dilemma is that human realities are organized lies operating robberies, which eventually suffer from paradoxical final failure from too much success from doing that. Cyprus was an astonishing flash in the pan example of how ENFORCED FRAUDS play through in a small country during a decade. Of course, that was a harbinger of what will repeat itself over and over, on larger and larger scales, in the foreseeable future.
The article above recommends that the mice should follow the elephants as they stampede. I have no better actionable intelligence to offer. I am merely observing the consequences of the collective tragedy that civilization is controlled by ENFORCED FRAUDS.
I am not able to offer any practical advice about the banksters being stampeding elephants headed off a cliff. Within their systems of ENFORCED FRAUDS, the "regular investor" is barely even a mouse, more like a microbe in relative size. Those who have the power to blow economic bubbles, by making "money" out of nothing as debts, tend to be the insiders that can profit the most from both riding their bubble up, and then down, after it pops. The banksters routinely buy up assets at bargain prices after they have blown another economic bubble, that has popped. The article above recommends that the mice run with the stampeding elephants, to follow them as they go through the stages of taking advantage of a popped economic bubble.
From the individual's perspective, that appears to be a practically possible thing to do, while doing anything about the overall ways that the ENFORCED FRAUDS are driving irreconcilable social polarization, and even worse irreparable destruction of the natural world, appears to be practically impossible. Too bad, so sad, there seems to be no ways to prevent the short-term triumphs of the ENFORCED FRAUDS, in the form of the banksters being "stampeding elephants," from eventually destroying the global economy and ecology.
Since most "regular investors" are least able and willing to perceive how "making money" is done inside of systems of legalized lies, backed by legalized violence, whereby everything they achieve is done on the basis of fundamentally fraudulent financial accounting systems, for those mice to become petite "vulture capitalists" (which is another basically false label), by running with the banksters' stampeding elephants, may well be the "best" that they can do, despite that they are thereby destroying the future of the human species.
The great paradox of human beings is that their abilities to make greater and greater "killings" is killing their future. However, all the way there, each increment of making another "killing" enables the next, and so on and so forth, towards killing so much that the human species probably will go extinct, along with most of the other bigger forms of life on the planet. Some human beings have become way too good at being hunters, to the degree that they are totally wiping out their prey. That applies all the way down, from the pyramidion people, of the men that prey on men, throughout all other lower levels of social control based on backing up lies with violence.
ENFORCED FRAUDS destroyed the economy of Cyprus in a decade. However, anyone who thinks that they could make a "good deal" now from buying up some of its broken pieces as a bargain tends to be continuing to operate inside the overall frame of reference of the paradox of the final failure from too much success through those systems of ENFORCED FRAUDS, by attempting to run with the stampeding elephants, as they blow economic bubbles that then pop.
Overall, we should develop some better implemented wisdom which enables there to be an evolutionary ecology that limits the degree to which the killers make their killings, so that they do not end up wiping out their prey, and thus, wipe themselves out thereby. However, the globalized scale of the established systems of electronic fiat frauds, backed by the threat of the force of weapons of mass destruction, have barely any influence upon each individual, within each short-term increment, that endeavours to maximize their own local abilities to make another killing, which continues to all add together to globalized killing of the future the killers, as well as everything that they used to depend upon to be able to kill to live.
Looking back at market turns, I'd say it's not advisable to invest in tops in which the word 'crash' appeared in front of your eyes. But I've seen plentiful references after the fact where the authors struggled to bring back this obscure article you've never seen which in retrospect got it right. It's all part of investing, all of us trying to outsmart one another, 8-)
Better off forgetting all that bollocks and just going to the local shops, start investing in your own area and friends? Buy some good 28 day aged steaks from the butchers instead of shit 15 day aged ones that the supermarkets convince people to be a good buy, tut tut.
Reap what you sow and all that......