stock market crash

Originally posted on the Wharton China Business Society blog On Saturday, January 30th, the Wharton China Business Society
SHANGHAI -- "Markets with Chinese characteristics" are as volatile and hard to control as markets with American characteristics. Markets invariably take on a life of their own; they cannot be easily ordered around. To the extent that markets can be controlled, it is through setting the rules of the game in a transparent way. The policy approach China adopts will strongly influence economic performance and prospects worldwide.
In such a fugue state, a "wag the dog" scenario in which the Chinese Communist Party tries to rally its citizens by attacking
Protecting the American people from another devastating financial crash and the economic wreckage it causes begins with reflecting honestly about the past and trying to learn the right lessons.
In late August, stock markets around the world saw one of the biggest declines since October 2008. Experts and economists are pointing towards China as the main culprit as they've dealt with a stock market slide for most of the summer.
Regardless of the policy choices that Chinese leaders must face, the average Chinese citizen will not be able to go to the polls. How they choose to voice their frustration and how Chinese policymakers react will be a very interesting dance over the next 18 months.
Chinese-style "manipulation" is clearly a disaster. While it has generated 35 years of stunning economic growth, it has also forced rich people around the world to endure a week-long, anxiety-provoking drop in stock prices!
Markets do fluctuate, but the crash of Shanghai means China will soon need a new development model. And there seems to be no secret Chinese institutional or developmental sauce. China will -- unfortunately -- likely become another corrupt middle-income country in the middle-income relative development trap.
How could a stunning one-day decline in a 2,000 point index be projected within 2 points of the 1971.89 close? How could the Dow's ninth largest point decline ever, and largest point decline since August 8, 2011, be projected within one percent?
Global investors and lenders have learned relatively little since 2008, creating more bubbles, ignoring more warning signs, and, until recently, continuing to party like it's 1999. The chickens are coming home to roost.
There are probably plenty of reasons to start preparing for trouble. Far be it for me to tell you to not be a doomsday prepper. Between the Federal Reserve, China and bonds, what's a poor investor to do?
Using data on economic recessions, I take a look at how long growth periods have been after recessions, and to see when the latest economic boom will likely come to an end. You're probably thinking "Economic boom? When did that take place?"
At best, equity returns over the coming decade will simply reflect earnings growth, assuming valuations can remain elevated. Historically, this has averaged about 3.8 percent over time.
If you've been investing for any length of time then you've experienced a market correction much like the one we are in now. But I'm not talking about a mere 10 percent correction. I'm talking about a drop like we saw in 2008 and 2009. Do you have a plan?
October is month when leaves are changing color, there's a nip in the air signaling the beginning of fall, and of course... stock market corrections!
First, make sure you have all the information you need to make a good decision. Second, don't make a quick decision about money. Finally, like I said before, make decisions that you would feel comfortable making for your own money.