Stock Market CAA-RASH!!

Just what IS a stock market crash?

Apparently, like everything else in trading, the definition of what constitutes a ‘crash’ in the stock market is ‘firm, but vague.’  There are definitions floating around, most of them dealing with percentages of drops in the major indices that occur over a relatively short time span.

This is an area that is absolute heaven for statisticians whose electronic sliderules are abuzz over the facts and figures of the situation .  (If you don’t know what a sliderule is, neither will you be able to recall the crash of October 1987.)  But remember what makes the stock market move, not only doing these times, but everyday and always –- trader beliefs, perceptions and emotions.

Of course beginning with the failure of financial institutions in October of 2008, there were serious financial issues involved, but I agree with at least one pundit who said that once the fear and panic ‘took hold’, it spread like wildfire and became a social phenomenon as much as an economic one.

The age of instant messages is an ally to the self-fulfilling prophecy phenomenon.  Once the fear began, the panic spread at an exponential rate.  One conspiracy theory, to which I must give some credence, is that it was framed by media moguls for the perfect political timing –- right before a presidential election that involved their extreme liberal candidate.

Panic selling initiated panic selling in what are called ‘feedback loops’ and viola!, a public lynching of various political and financial institution scapegoats.

What really happened?  We’ll have to wait for the Hollywood version to get yet another highly distorted and slanted account.