Connecting the financial linkages of the past to guide the present!

Khyati Mashru Vasani
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Khyati Mashru Vasani

Connecting the financial linkages of the past to guide the present!

Understanding the linkages between past financial evidence and present events is absolutely basic for a good understanding of how the whole financial system has gone through everything that time has presented. 

Let us start with a glimpse of the Worst recession in 40 years that occurred when the debt crisis started emerging clearly in august 1982. When Mexico was not able to service its external debt obligations, marking the start of the debt crisis. After years of accumulating external debt, risen world interest rates, the worldwide recession and sudden devaluations of the peso caused external debt payments to rise sharply. The world experienced a debt crisis in which highly indebted Latin America and other developing regions were unable to repay the debt, asking for help. The IMF coordinated the global response, even engaging the commercial banks. It realized that nobody would benefit if the country after the country failed to repay its debts.

The very next year in 1983, the Market hits new high and gave S&P performance of 22.51%. With the market soaring high the very next year 1984-USA recorded a federal deficit.

In 1985, the dollar starts to decline, and bull market soars. Dow nears the record high of 2000 in 1986 and this bull market crashes the very next year in the market massacre of Black Monday happens in October 1987. 

In 1988, the Election-year jitters giving hopes to the people but even the signs of recession start commanding backed by junk bond collapse shaking the market in 1989 with a mini-crash.

In 1990, the Persian Gulf crisis occurred with the gulf war creating the worst market decline in the last 16 years. The Soviet Union collapsed in 1991 and next year markets were flat with a global recession. During 1993 the businesses started recovering on a global level also the interest rates were going up simultaneously. Markets were too high in 1995 and then the fear of inflation took a hid in the economy.

The government borrowing rose, and firms overstretched themselves in a ‘dash for growth.’ When market sentiment changed foreign investors sought to reduce their stake in Asian economies causing destabilizing capital outflows, which caused rapid devaluation and further loss of confidence. These Asian economies faced macroeconomic shock resulting in “The Asian financial crisis of 1997”. It affected countries like Thailand, the Philippines, Malaysia, South Korea, and Indonesia. Typically these countries experienced rapid devaluation and capital outflows as investor confidence turned from over-exuberance to contagious pessimism as the structural imbalances in the economy became more apparent.

From about 1997 to early 2000, there was a pervasive feeling and an induced actuality of wealth among those who invested in the stock market. This led investors to be willing to invest in more elaborate housing, and this likely contributed to rising housing prices each year from 1997 to 2001. In the 1990s, a period of massive growth in the use and adoption of the Internet the dot-com bubble burst; it was caused by excessive speculation in internet-related companies. The dot-com bubble was a stock market bubble caused by excessive speculation in Internet-related companies in the late 1990s.

These lists of economic events were followed by 2001 - Recession, World Trade Center Attack, 2002 - Corporate Accounting Scandals, 2003 - War in Iraq, 2004 - the U.S. has massive trade & budget deficits, 2005 - Record oil & gas prices, 2006 - Housing bubble bursts, 2007 - Sub-prime mortgage crisis, 2008 - Banking & Credit crisis, 2009 - Recession - "Credit Crunch", 2010 - Sovereign debt crisis, 2011 – Eurozone crisis, 2012 - U.S. fiscal cliff, 2013 - Federal Reserve to "taper" stimulus, 2014 - Oil prices plunge, 2015 - Chinese stock-market sell-off, 2016 - Brexit and US presidential elections, 2017 - Stocks at a record high, Bitcoin mania, 2018 - Trade wars and rising interest rates, 2019 - India GSP at 5 %, and who can afford to miss the on-going 2020- COVID-19.

These glimpses of market events expose the variety of emotions that are involved with investing in the stock market. It has never followed a linear curve and never would there have been worst times and can come newer awaiting ones. There will be ups and downs, bullish and bearish markets but at least looking at the history it is easy to say that yes there’s a bright light at the end of the tunnel and Mr. Market is strong enough to survive and thrive through all.

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