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The biggest stock market crashes and asset bubbles throughout history

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2010: S&P 500 E-Mini Futures Flash Crash

The May 2010 flash-crash imprinted the meaning of flash-crashes deep into the minds of traders, given how large and impactful it was. On May 6th, the stock market was under a bit of stress when suddenly the S&P 500 E-mini futures collapsed by over 6% in about seven minutes before fully erasing those losses in the 10-15 minutes following.

“Navinder Singh Sarao – a trader from Hounslow, London – was accused and found guilty of placing large sell orders which would get canceled just before they would get filled; a strategy called ‘spoofing’.”

While Navinder Singh Sarao was found guilty of causing the flash-crash (or, as he put it, “just being good at his job”), these events don’t happen out of thin air. They occur when the market is already in a fragile state.

2011: Silver and Gold price bubble

This is the second of two major bubbles in the precious metals market, and while not as spectacular as the run-up to the 1980 top, it nevertheless still ranks as one of the bigger bubbles in the history of major markets. The silver bull market began in 1999 and picked up speed during the Great Financial Crisis before the end arrived in April 2011.

Gold peaked at a price of $1896 and silver at $43.25. By June 2013 gold was down by 35% and silver once again outshined the gold bubble on the downside by shedding 56% of its value. Both have traded lower since and at the time of this writing (December 2018) it is still unclear as to whether the bear market cycle is yet over.

2011: USD/JPY Flash Crash

As mentioned before, loss of liquidity is a driving force here, particularly with regards to USD/JPY on March 16, 2011. The flash crash of 2011 took place during the least liquid time of the day, just after the U.S. close. Not only was USD/JPY weak on the macro-front, trading at its worst levels on record, but more recently it had come under selling pressure in the wake of a massive earthquake and tsunami in Japan. Market conditions were in a fragile state when this particular liquidity-driven event hit. USD/JPY declined 3% in less than 10 minutes before recovering sharply.

2014: U.S. Treasury Bonds flash crash

The treasury flash-crash on October 15 unfolded after a month-long decline in yields, playing not long after the stock market had opened for the day. The shot lower in yields (higher bond prices) lasted only a few minutes in typical flash-crash style and the price move was immediately wiped away in the minutes to follow. The event became notorious in the treasury bond rates’ history.

2014 Russian Financial Crisis

The Vladimir Putin-led Russian economy grew appreciably in the first half of the 21st century, thanks in large part to the thriving energy sector and rising global commodity prices. The Russian economy became so dependent on energy exports that nearly half of the Russian government’s revenues were generated by the sale of oil and natural gas.

But global oil prices took a nosedive in June 2014. The average price for a barrel of oil dropped nearly 40% in six months from the previous $100 threshold. The dip below $100 was noteworthy since that was the number that Russian officials estimated was necessary to keep a balanced budget.

Putin exacerbated the energy problem by invading and annexing Crimea from Ukraine, resulting in economic sanctions from the U.S. and Europe.9 Major financial institutions, such as Goldman Sachs, began to cut off capital and cash to Russia. The Russian government responded with aggressive monetary expansion, leading to high inflation and crippling losses among Russian banks.

As a result, economic sanctions were imposed by the U.S. and Europe as well as other countries, which included a ban on buying western technology to develop oil. Other sanctions included blocking Russian banks from obtaining capital from Europe or the U.S.10

The impact of the crisis and the sanctions on the Russian economy were significant. In 2015 the GDP declined by -1.97% from the year earlier. It wasn’t until 2017 before the Russian economy posted an annual growth rate of over 1.5%, according to the World Bank.

2015: EUR/CHF Flash crash

Of the examples we’ve looked at, this is the lone flash-crash which was sparked by an abrupt fundamental event. The Swiss National Bank (SNB) announced on January 15th that they were no longer supporting the Swiss Franc vs. the Euro at 1.20, causing the floor many market participants were leaning against to collapse.

The drop was spectacular, as there were trades at some banks going off as low as 0.68. Since there is no official exchange where currencies trade the exact low isn’t known. But looking at the aggregate price move following the news, there was almost an instant decline of over 13%, with few trades executed in this air pocket. The gap took over 3 years to fill.

2016: GBP/USD Flash Crash

The Great British Pound flash crash came about three months after the Brexit referendum, as the British currency continued to come under strong pressure. Similarly to USD/JPY, this event occurred during an illiquid time of the day, after the U.S. session during early Asian trade. “The low spike was very extreme, taking no more than a couple of minutes for GBP/USD to decline nearly 5%.”

The recovery in the minutes after wasn’t as sharp as other flash-crash events, but a large portion of losses were recovered in the 20 minutes or so following.

Betting against the stock market after the pandemic broke out proved to be wrong. Copyright: Imago Images

Bitcoin bubble 2017- 2019

In 2017, bitcoin rose by over 1,000% from its low to its high. But then, the bubble burst and the price sank throughout 2018. The cryptocurrency craze began in 2010 with Bitcoin, and saw a staggering rise from under $1 to nearly $20k by December 2017. However, in mania-like fashion, the majority of those gains came in less than a year, with the price rising from around $700 in January 2017 to Bitcoin’s final peak price of around $19,600 (the exact price depends on the exchange where it was traded).

Without accurate prices from the Tulip days it’s hard to say with pin-point accuracy as to exactly by how much the Bitcoin bubble truly exceeded the Tulip mania, but by achieving literally millions of percent in returns from day one to the end (started at $0.06), this does not really matter.

Bitcoin rallied for the first half of 2019 … then rolled over and died again. But it came to life again in 2020. Fueled by the economic downturn caused by the Covid-19 pandemic and fears of a global meltdown of the world economic system bitcoin rose to more than 10,000 dollars.

The arguments for gold and bitcoin are similar. Both are perceived to be valuable due to their rarity. The amount of gold in the Earth’s crust is fixed, and the expense of digging it out naturally keeps supply growth in check. Bitcoin’s supply is regulated by a complex algorithm.

And both are insulated from Federal Reserve tinkering. The Fed can print dollars with reckless abandon, but it can’t make gold or bitcoin materialize out of the ether.

2018: Dow Jones Flash Crash

Index futures have become increasingly thin over the years, with stock market volumes also declining significantly. This has made index futures extra fragile. This one flew under the radar in some respects, but nevertheless the sudden 4% drop in Dow futures in a 10-minutes window qualifies as a flash-crash. The recovery was equally as fierce.

The other major US indices also underwent similar price swings, but not to the same degree as the Dow. There was no ‘malfunction’ so to speak which caused this, but the market at the time was under short-term stress prior to the event.

2020 Stock market crash

The 2020 stock market crash, also referred to as the Coronavirus Crash began on 20 February 2020, and ended on 7 April. The crash was the fastest fall in global stock markets in financial history, and the most devastating crash since the Wall Street Crash of 1929. The crash caused a short-lived bear market, as in April global stock markets re-entered climbing mood.

What separates this particular incidence from others is the fact that U.S. stocks were trading at record highs before crashing into the bear market territory at a record pace, even faster than the 1929 crash. At the time of this writing, the S&P 500 has lost around 30% of its value in just a month’s time. Typically, crashes come at least a few weeks after the initial top, if not months or longer down the road.

The S&P 500 volatility index behaved just as impressively, with it rocketing to levels only seen during the height of the Great Financial Crisis and the crash of 1987. When looking at the old VIX formula (VXO), it spiked from around 13 to over 100 during the initial crash. An extraordinary move

The crash signaled the beginning of the COVID-19 recession. The Dow Jones Industrial Average reached a peak of 29,199 points on 3 September 2020 at 9:48 EST before plunging nearly 1,000 points throughout the remainder of the day.

On 16 September, the Federal Open Market Committee (FOMC) gave its final economic projections, which led the DJIA falling 4% over the next three days. Throughout September, the DJIA declined by 9% amidst growing fears of a second COVID-19 infection wave, lack of federal stimulus outlook, and U.S. election instability. In October the market recovered but was unable to reach its August peak.

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