Thursday, 18 September 2008

Living an illusion

In 1929 Wall Street was experiencing a bull market like never before. Making money on the stock exchange had never been easier. Every Tom, Dick and Harry became an investor. It was very difficult to put a foot wrong.

As more and more people entered the market, share prices rose faster and faster. It didn't really matter ehat share you bought - every share was a winner! Investors invested on borrowed money. The banks were only too pleased to lend the money - debt produces an income for them.

What went wrong?

Someone suddenly realised that share prices were way beyond reality. A company that was perhaps worth $50,000 was trading on the market for ten times its value. At times even more. A share price that reflects a 100:1 price earnings ratio is clearly not a good buy. But who cared? Share investments were bringing in huge returns!

The first crash of 1929 happened on 24 October to be folloewed by Black monday on the 28th.

The world has changed considerably since then. Govenments will intervene in most circumstances.

The current crisis is one of the worst for many tears. But the checks and balances seem set to cope withthe masages!
South Africa may bit be totally imune

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