2 leg down to be devastating, page-48

Martis and Sido,

The issues that underpinned the '29 and '87 crashes are very different now.

Most who had to sell in '87 that precipitated the crash did not want to sell their stocks though had to due to margin calls.

The US and Aust now have procedures in place to avert this, including changes to the way you can trade.

One such major change has been to stop losses which now have an enforced narrower range between trigger and sell levels to effectively take a stop-loss out of the market very quickly (gapped over and unfilled) should the stock plunge.

The US and Aust, and many others internationally, can shut down the equity markets at no notice if market conditions are felt to threaten economic stability.

The experience of 1987 has shown many that the biggest losers are the ones that sell out at the bottom. Very few trades occurred on the way down in 1987 - As you will see with most stocks - the buy orders even down to about half the stock value are usually only a few percent of the total stock, and people weren't putting new buy orders in! The majority of selling was at or near the bottom - and those would all have been better off holding for another week to get the over 20% rebound.

The world economy has much stronger foundations. Though there is a fair bit of debt the institutions responsible for 90% of world production are effectively debt-free (many have many billions in CASH - eg QANTAS has almost $4B cash at the moment. The companies that are in trouble do not actually produce anything that can't come from elsewhere - if "countrywide" in the US or Mac Bank here went broke it would have no effect on production of anything real. People can get funding from elsewhere with a simple phone call. If IBM, BHP, Holden etc went broke (which they won't as they are all very sound) it WOULD matter as these companies do REAL things, not just shuffle money around.

Yes some stocks will be treated harshly but anyone with blue chip investments will be fine as those companies are in the soundest economic position in history. Corporate debt of the top 500 companies (accounting for over 85% of GDP) is less than one half of what is was even ten years ago and around 20% of what it was in 1987.

This is why people who actually understand these issues (eg world bank economists, experienced analysts etc) KNOW a major crash is not coming and that blue-chips will be fine.

A technical trader looking at a few numbers on a chart and comparing them to what happened when a chart a bit like it was seen 78 years ago has NFI.

Note that the patterns you refer to have happened many, many times since 1929 (read about 30 times) - and at times when the economy was shakier, with no market capitulation.