Since 1987, Wall street had no pronounced crash. Even in 2001, when Greenspan raised interest rate to 6.5%, the market had a correction, but no crash. It is based on mostly liquidity from the Fed's overnight discount window, the 50% margin required for stock investment, and traders' accumulated short interest supporting the market. Crashes generally happens when selling greatly exceeded buying. In 1929, there were insufficient short interests to support the market. Cash was scarce, every one borrowed on their stock, wiping out savings.
So how do market makers control the markets today?
Sector rotation is key to spread risk. The demand for stock is always in technology sector; and in 2001, that is where the depreciation is most severe. Some investors prefer low tech business, and their investment is more stable. High tech can be sudden and obsoleted sooner, because of severe competition. Low tech business is mostly population growth and wages related. The growth is steady; and profit is still easily achieved by supply chain software utilization.
When we went to business restructuring for obscene profits, stock value is appreciated when investors came in. But we have to restructure market makers with cash and stock pools to stabilize the stock supply and demand to prevent crashes from happening.
So far so good. In october(seasonally sensitive), we will request $16 billion ready at Fed's overnight discount window in NYC; so that liquidity is available for Wall street. |
