Financial crisis is like a public demonstration PART 2

The last part of Financial crisis is like a public demonstration, read Part 1 here. Let’s see some of the points I have raised in Part 1.

By the time, I post this Singapore is already in a recession in technical sense. 

The transition of emotions:

• Stage 1 - Enthusiasm
  
• Stage 2 - Excitement 
  
• Stage 3 - Frustrations
  
• Stage 4 - Hysterical
  

Stage 1 Enthusiasm – Market sentiments are usually a speculation of market reactions to rumours and news. Like it or not, even people with no vested interest in any counters join the pack because of the herd mentality. Which shares to sell? How’s the market performing?  In a financial crisis like this, it’s not hard to find people following the market news even if they usually don’t. Some individuals are ready to sell even at a loss even before another bad news trigger their decision to sell. They have read enough bad news especially when the media is giving coverage on the falling market everyday.

Stage 2 Excitement – As the sentiments gets worse, more sellers jump in to sell off their shares. The large crowds and the intense emotion attracted more dejected and worried shareholders. A negative excitement out of desperation.

Stage 3 Frustration – More bad news. Portfolio losses. The individual cannot understand how he could have incur so much of loses within a short span especially the investor whose investments are tie to sub-prime companies. The disappointment in financial products and financial markets guarantee the coming of mass selling and closure of investment portfolios. The ineffectiveness of capital injection will drive the market crazy.

Stage 4 Bloodbath in the market. Frantic selling at its height, worrying that the crisis may become unstoppable, investors start selling off their investments, they don’t care if they are losing money when they realised their portfolio, even though holding on could only mean paper loses and not actual loss - the hysterical sellers. They will sell at any price as long as there are buyers. Exit has no strategies; at this point it is totally useless to them, non-existent. 

Gone baby gone.

In Technical Analysis, this is called the Total Despair (what an unpleasant name but it sums up the sentiments in the market), confidence lost, gone case, “I am selling and I don't care if I am making loses”. You can't blame them, not everyone is financially literate, not everyone knows about paper lost, nobody cares if this is only temporary; they have to put food on the table.

The market cycle repeats itself again and again from bloom to doom vice versa caused by nothing but sentiments.