Berkan ROUISSI ESCOFFIER, Paris II – Assas.. « An economic cycle characterized by rapid...

MARKET BUBBLES

Berkan ROUISSI ESCOFFIER, Paris II – Assas.

Graph and definition

« An economic cycle characterized by rapid expansion, followed by a contraction. »

Market bubbles through history

***********, 1637 French and English crisis, 17th century The « Railwaymania », 19th century European crisis, 1873 The real estate bubble in Florida,

1926 The 1929 crisis, Nickel crisis in Australia, 1970 Wall street debacle, 1987 Dot com bubble, 2000 Subprime crisis, 2007

What is this ?

Tulip Bulbs

Tulipomania, 1637

• Discovered in Turkey

• Luxurious product

• Massive investment in the industry strong rise in prices

• 1 bulb = 20 years of a worker’s salary

• Protests from the Dutch people against such prices, back to reality.


French and English crisis, 17th century Low return on investments from colonial

firms

The « Railwaymania », 19th century Deception regarding profits earned from rail

development in the US.

European crisis, 1873 Disastrous Universal Exposition in Vienna

The real estate bubble in Florida, 1926 A classic real estate bubble

Who is an expert in 1929 ?

A. Between 1921 and 1929, the Dow Jones Index rose by:

3. 250%

2. 110%

1. 10%

4. 300%


A. Between 1921 and 1929, the Dow Jones Index rose by:

4. 300%

Right after the war, the economy and especially industry were booming.The profits made by huge companies such as Wright Aeronautical, Texas Company or Nash Motors were so attractive that lots of people invested all of their savings, leading the rate to rise in such enormous proportions.


B. The Wall Street crash of 1929 is also called… :

3. « Black Thursday »

2. « In between Crisis »

1. « U.S Failure »

4. « Post-War Depression »


3. Black Thursday

The crash started on Thursday, October 28. That day, no one wanted to buy shares anymore, conscious of the lack of payback. Worse yet, everyone wanted to sell them. The day was dark but, a few rich investors and banks saved the Dow Jones, promising to buy what they had to to keep the rate high enough and avoid big loses.

Unfortunately, the following Monday called “Black Monday” and Tuesday called “Black Tuesday”, people kept on selling while nobody wanted to buy, the Dow Jones collapsed.

B. The Wall Street crash of 1929 is also called… :


C. The speculation on companies shares started in... :

3. 1924

2. 19261. 1928

4. 1920


1. 1928Speculation : practice of engaging in risky financial transactions in an attempt to profit from short or medium term fluctuations in the market value of a tradable good such as a financial instrument, rather than attempting to profit from the underlying financial attributes embodied in the instrument such as capital gains, interest, or dividends.

“Now, it’s time to get out of debt. We do not urge that you sell securities indiscriminately, but we do advise that you take advantage of the present high stock prices and put your own financial house in order.” Charles Merrill, in letter to his customer before the crash.

C. The speculation on companies shares started in... :


D. Between 1921 and 1929, US industrial production rose by:

3. 50%

2. 30%1. 10%

4. 70%


3. 50 %

After the war, Europe’s economies wer devastated. The U.S economy took the lead, becoming the first car producer or manufactured-product producer for example, taking advantage of the return of liberalism with peace.

The decade from 1920 to 1929 is also called the “roaring twenties”

D. Between 1921 and 1929, the US industrial production raised of :


3. 1931

2. 19321. 1933

4. 1930

E. The stock market crash turned into a bank system crisis. The worst for the economy happened in …:


2. 1932

What is the worst ?• 12 000 000 people out of work• 12 000 people being made redundant everyday• 20 000 companies had gone bankrupt• 1616 banks had gone bankrupt• 1 farmer in 20 evicted• 23 000 people committed suicide in a year – the highest ever.

E. The stock market crash turned into a bank system crisis. The worst for the economy happened in … :

TOP 5 : Biggest losers that week

Category : FIRMS

5. General Electrics1612 $ 154 $

4. General Motors 1075 $ 40 $

3. U.S Steel 262 $ 22 $

2. American Founders Group75 $ 0,75 $

1. GOLDMAN SACHS 104 $

1,75$

Share price in : 1929 1932

TOP 5 : Biggest losers that week

Category : PERSONAL INVESTORS

5. Winston Churchill500 000 $

4. Eddie Cantor2 000 000 $

3. Rockefeller Family30 000 000 $

2. Vanderbilt Family40 000 000 $

1. J.P Morgan Jr 50 000 000 $


Nickel crisis in Australia, 1970 An Australian firm, Poseidon,

discovered interesting fields in terms of raw materials. The investments that followed disconnected the prices from the reality.

Wall Street debacle, 1987 Due to a rise in long term interest

rates, the algorithmic trading system failed and investors sold massively. Enough to bring down the Dow Jones of 22,6% in a day.

Dot com bubble

Beginning of the bubble : 1995.

Interest in Internet and IT companies, such as Yahoo or AOL was waning.

Reasons : speculation and optimism : “Technology is unlimited”

Role play – Who is who ?

A. Government

E. Bank (BNP PARIBAS)

H. Financial IntermediaryG. Entrepreneur

B. Bank (J.P Morgan)

D. Bank (Lehman Brothers)

C. Unemployed worker

F. House buyer (in Detroit for example)

A. Government

E. Bank (BNP PARIBAS)

H. Financial Intermediary

G. Entrepreneur

B. Bank (J.P Morgan)

D. Bank (Lehman Brothers)

C. Unemployed worker

F. House buyer (in Detroit for example)

Role play – Who is who ?

What is « go for chicken » ?

New way of managing a country :

http://www.youtube.com/watch?v=wz-PtEJEaqY



Webographie

http://www.nytimes.com/learning/general/onthisday/bday/1019.html

http://www.morning-meeting.com/les-bulles-speculatives/

http://www.investmentu.com/investing-topics/charles-merrill

http://en.wikipedia.org/wiki/Black_Thursday

http://en.wikipedia.org/wiki/Charles_E._Merrill











Berkan ROUISSI ESCOFFIER, Paris II – Assas.. « An economic cycle characterized by rapid...

Documents

Transcript of Berkan ROUISSI ESCOFFIER, Paris II – Assas.. « An economic cycle characterized by rapid...