As I write this article, on Monday, I am once again looking at an all-too-familiar computer screen filled with flashing red lights. The FTSE is negative once more, having been down to 3665.2 this morning, the lowest since March 2003. Using the low of today and comparing it to exactly one year ago, the FTSE 100 Index has dropped 45 per cent, and, compared to this day one month ago, it is down 28 per cent. The Dow Jones hasn’t faired any better and is now at its lowest since the start of the invasion of Iraq and the Nikkei Dow in Japan is now at a 26-year low also.

It is very difficult to point to a specific event that has caused further falls in the financial markets. Recent attempts to solve the problems have not been immediately successful which has led to further panic and a slowdown across Asia has certainly not helped. Now it seems with the prospect of a global recession looming, any bad news is having a significant negative effect on the stock market. Last week the GDP figures were released and it was confirmed that Britain’s economy shrank by 0.5 per cent in the third quarter, having been expected to fall by 0.2 per cent. Even if we aren’t technically in recession yet, those numbers effectively show that we are. This risk of recession and, as mentioned a few weeks ago, the forecast fall in interest rates, further supports the argument of holding government stocks, or gilts, as they are sometimes known. Further bad news for markets surrounds oil prices and currencies. Brent crude has dropped below $60 a barrel with the anticipated slowdown expected to effect demand for the products of the big global commodities companies. This week has also seen the largest intraday fall of sterling against the dollar for 37 years as the exchange rate fell to a five-year low of $1.527 which was in response the GDP figures.

The question now on many people’s minds is whether and how much further the market has to fall. This is, of course, very difficult to answer, although many traders believe in the idea of capitulation. Broadly, this term refers to a market surrender, is often marked by panic-selling and very high volumes of transactions, is sparked by investors believing they have no hope of making any money from their shares and so are willing to sell them at any price. Some experts believe that the bottom of the market is close but the problem is others believed we were there a month ago. Spotting capitulation and the bottom of the market is very easy in hindsight but it’s those who actually invest at the bottom who will benefit most.

Interestingly, Warren Buffet, an American billionaire, has recently started investing and the reason for his decision is made clear: “A simple rule dictates my buying: Be fearful when others are greedy and greedy when others are fearful.”