Saturday, June 24, 2006

The History of Wall Street

I am about to finish reading a fascinating book called 'The Plungers and the Peacocks' by Dada L. Thomas. The author through his research presents the history of Wall Street from its inception to the infamous Tech bust at the turn of the century. The stories are intriguing and grips the reader from page to page.

As a student of history, I am a big believer that history needs to be studied and remembered to avoid the same catastrophes from re-occurring. The chapters on the Crash of 1929 and the following Great Depression are must reads for any student of the markets. According to the author, the event that preceded the Crash was a liquidity problem. The US government at the time had just begun to implement measures to halt credit from being to easily loaned to brokers and stock traders. Further, interest rates were on a rise at the time. The liquidity problem eventually lead to the crash where fortunes were wiped out, many people unable to handle the shock committed suicide and there was panic everywhere. A ten year depression followed in which the economy suffered and the market continued to fall. Many a veteran trader who escaped the crash of 1929 unscathed returned to the market shortly after to buy 'at the low'. The way it has worked for them so many times in the past. Unfortunately, the unforgiving markets continued its slide and wiped them out also.

Could history repeat itself in today's sophisticated markets and watchful government regulations? Nobody knows for sure, but to completely ignore the possibility would be foolish. May 10th 2006 was the day the US markets begun to fall. Gold had hit a high of $740 and commodity futures and stocks were at all time highs. The big sell-off was followed by markets all around the world. Many blamed new Fed reserve chairman Ben Bernanke for his stance on further interest rate hikes. However, the real reason lay beneath the surface. The real reason was the reduction of liquidity by the Bank of Japan of 200 billion dollars. Some resemblance to 1929? As a result of the reduction of liquidity, investors especially large hedge funds have been liquidating their holdings, unleashing a big wave of selling.

The market hit what may be a temporary bottom a week ago and is currently showing a small rebound. The bigger question is whether markets will continue to fall. Interest rates are rising in the US and worldwide. Liquidity will continue to be a problem The housing boom in the US which has been driving most of the economic activity in the last 4 years is slowing. Oil prices are rising and consumers, already debt ridden are pushed harder than ever before. Experts argue that economic activity continues to look strong but I would argue that things look the best just before they turn south. Looking forward, investors need to be mindful of the lessons from the 1929 crash in our current investment climate.

Friday, June 16, 2006

Bill Gates to retire in 2 years

It has been exactly one year since I last updated. I apologize for the lack of updates. I have been busy and travelled for 9 months over the last year and in the process observed the economies and culture of many countries. I hope to share some of those thoughts on this blog in the future.

And to today's topic:

Bill Gates announced last night that he will be retiring from Microsoft in a couple of years. The Microsoft empire has obviously changed the world and the way we live. But many question where Microsoft is heading. With Google leading the internet advertising space and leading the next generation of on demand software and web-based software. Can Microsoft remain King for much longer?

Bill Gates is a legend. He will be remembered as one in the tech world as well as the most generous philanthropist in history. He is a great visionary and a great man.

I think the bigger question for Microsoft is Steve Balmer and the rest of the top management and architects. If they can innovate and mobilize Microsoft to be nimble, they have a great chance to remain on top in the next change wave of software technology. If they cannot, the departure of Bill Gates may be remembered as the day Microsoft turns south