News flows and market movements

I was contemplating on how news flows affect the markets. 

I believe that the news flow during crisis have a certain pattern of behavior. When the first negative news come people feel that the worst is over and markets resume their upward journey. 

After a lull of few months again other negative news come and people believe that the worst is discounted and the market resumes upward. This is repeated for few more months when suddenly the market realize that the problems have been brewing over past couple of years and markets tank. 

I remember that in February 2007 HSBC was the first bank to declare a loss due to sub-prime crisis and every one thought the pain is limited. Than after every two three months one or other bank came out with negative news.

THE CHRONOLOGY OF SUB PRIME CRISIS

• February 8, 2007 - HSBC - HSBC blames U.S. subprime defaults for its first-ever profit warning.
• April 2 - NEW CENTURY - New Century Financial Corp. filed for bankruptcy protection. 
• August 9 - BNP PARIBAS bars investors from redeeming cash in three funds
• September 13 - NORTHERN ROCK - Britain's biggest casualty of the credit crisis suffers a bank run
• October 24 - MERRILL LYNCH writes down $8.4 billion in bad investments related to subprime lending.
• December 19 - MORGAN STANLEY writes down  $9.4 billion of mortgage-related securities.
• January 15, 2008 - CITIGROUP posts its first quarterly loss, hurt by $18.1 billion of subprime - related write downs.
• Jan 17 - MERRILL LYNCH reports its worst-ever quarter, revealing around $16 billion in mortgage-related write downs.
• February 14 - UBS says it is writing down $18 billion in bad loans.
• April 1 - UBS doubles its write downs to $37.4 billion.
• April 2008 - Bears and Sterns goes bankrupt and the share price falls form 150 USD to 1 USD
• September 6 - Fannie Mae and Freddie Mac are nationalized 
• September 15- Lehman goes bankrupt Merrill Lynch is merged with BOA
• September 17 - AIG is nationalized.

So we can see that these type of macro news take time to play out. Similar to the observed trend in sub prime news we now see news about sovereign defaults.

• Dubai debt crisis came in December 2009
• Greece debt crisis came in January 2010
• Gold man came in April 2010
• PIIGS came in May 2010
• China and Europe came in June 2010

Every 3 -4 months we will have some major negative news and small market correction following that news and people will feel that its over.

But over a period of time it will culminate into a bigger mess. Most probably over next two years we will see that there are larger crisis wating to happen.