Panic selling hit Tel Aviv stocks and bonds Thursday, driving indices to five-year lows at the close, a possible sign that the worst is over, according to "contrarians." The problem with their theory is that it already has failed in previous sell-offs this year
The real estate index, which reached as high as 850 this year, sank to an all-time low of 135. The bank stock index, which for a few months had traded above 1,400, dropped to a five-year low of 685.
The technology stock index plummeted to an all-time low of 129, one-third of its previous peak level, and the Tel Aviv 100 index dropped to half of its previous high, closing at its late 2004 level of 595.
Fears that a total economic disaster could bring Israel to its knees swept through private and public circles this week, with several business leaders begging for government intervention to save the national economic ship. Most of the country's assets are in the hands of less than dozen families. If they suffer financial losses, bankruptcy could be the buzz word of the day.
Fears that a total economic disaster could bring the country to its knees swept through private and public circles this week.
Finance Ministry Director General Yarom Ariav told a conference held by the Prime Minister this week, "It is clear that no umbrella is large enough to protect us from the second storm. No matter what we do, we will get wet. Here, there is room for some form of government intervention to mitigate the damage of the crisis."
However, he added that there is no need "for rescue bailouts of financial institutions" similar to those instituted by the United States.
Falling stock prices have severely reduced the value of pension plans, and thousands of people have pressed the alarm button and withdrawn tens of millions of dollars from funds such as 'keren hishtalmut," a widely used vehicle to increase workers' wealth without directly raising wages.
Announcements of layoffs, from high tech to private security agencies, prompted Minister of Welfare Yitzchak Herzog (Labor) Thursday to announce an easing of standards for receiving unemployment benefits.
Alrov chief executive officer Alfred Akirov told this week's economic conference that unemployment could soar from the present six percent to 15 percent.
The only good economic news was the expectation that the October consumer price index, to be announced Friday, will be around zero. The free-fall in the price of crude oil has resulted in a drop in energy prices that will be reflected in the November rate, which is all but certain to be below zero.
Investors have sold stocks and bonds in the expectation of massive layoffs, which will reduce the amount of money available for consumption, resulting in falling profits and more layoffs.
The early 20th century American investor Bernard Baruch's adage that the "stock market will fluctuate" never was more appropriate than this year. However, one good sign for Tel Aviv was registered in New York Thursday, with a topsy-turvy day that resulted in a mammoth 10 percent surge from mid-day lows.
Trading in Tel Aviv resumes Sunday morning and it direction will be determined by Friday's trading in New York. With stocks having dropped through the bottom and several at levels that give investors dividends at a rate up to 10 times that available in bank accounts, the contrarians may be right this time around.