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A Revisit to the 2006 Sell-off



January 13, 2007 – Comments (2)

I thought I'd look to see when the S&P 500 hit its peak before the sell-off (it has since recovered and is higher than that point, it has been for some time). It hit the peak on 5/9/06, and its low was on 7/15/06.

Here are some things that could have been factors to the sell-off.

This is what's interesting. On 5/12/06, Robert Shiller, an economist who I follow closely (he's the author of Irrational Exuberance) and has been very accurate (he predicted the tech bubble), said he "sees U.S. rally cutting out." Take a look: Shiller was saying this for disappointing 2-3 year performance, but he sure got the 2006 sell-off timed right.

Zimbabwe's inflation topped 1000% on 5/13/06:

On 5/13/06 gas prices tumbled to a one-year low:

I can't remember what exactly set off the sell-off, but on 5/15/06, these were some of the article headlines from AP:

Taiwan Shares Drop 1.4 Percent

Philippine Shares Tumble 3.2 Percent

Singapore Shares Dive 3.3 Percent

Hong Kong Shares Fall 2.4 Percent

Indonesian Share Plunge 6.3 Percent

Indian Benchmark Index Tumbles 3.8 Pct.

Thai Shares Fall on Political Woes

Taken from:

Gold was also down that day.

Interestingly enough, that same day there were the most IPOs the SEC had seen in six years:

April housing starts and permits were down:

On 5/18/06, India's benchmark index fell the largest amount it ever had, 6.8%:

This is also when foreign buying of U.S. securities was declining:

Natural gas prices hit a 15-month low on 5/18/06:

Warren Buffett was wary of real estate and commodities speculation:

On 5/22/06, Indian stocks fell 10% and trading was halted, mainly because of profit taking: On 5/23/06 Indian stocks recovered the next day a bit, going up 3.3%.

That was basically the start of it. I remember India was down largely on speculation that interest rates were going to be raised, IFN was down 40% in less than a month. Because many of the markets were down on speculation and profit taking, the recovery has been very quick, giving everything back and more with it.

Honestly, I don't think we'll see a sell-off real soon. Housing has gotten a lot out of its system, interest rates are steady, oil prices are low, and the S&P 500 P/E is hanging around a more reasonable 17. I believe we will see a sell-off, but probably nothing as dramatic as what happened in 2006. Right now there is enough behind the market that I don't see it having too much downside, but profit taking is always a risk. I guess from an economic point of view, the market should be steady enough, but some investors will surely take some profits. Overall, though, I see today's condition as being a little more steady than it was in early 2006, and a lot of what was being speculated about then has already happened now, there's a lot more stability with people. There'll still be speculation, but I don't think there's quite as much right now.

I hope you found this interesting. If you didn't, don't worry, I don't plan on teaching history. ;-)

2 Comments – Post Your Own

#1) On January 14, 2007 at 6:39 PM, devoish (99.09) wrote:

How many people are you? You are beginning to frighten me.

But really, thank you very much for your blogs and your comments. Your writing is entertaining, your analysis' is educating, and your willingness to share what you know and believe is generous.

Thank you,



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#2) On January 16, 2007 at 11:01 AM, TMFPencils (99.83) wrote:

Hi Steven,

Thank you for the kind words!

It's very motivating to hear that my work is appreciated, so I thank you again very much!

Hopefully in the future I'll be able to keep posting items of interest, I'll do my best.



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