Skip to comments.Market experts are starting to see parallels to the financial crisis
Posted on 02/09/2018 8:26:01 AM PST by WilliamIII
To some market analysts and fund managers 2018 is beginning to look like the early days of the financial crisis of 2007-2009. They say its not the selloff itself that seems ominously familiar but the underlying causes of the selling.
Part of what brought down the stock market [this week] was very symptomatic and very similar to what happened in the financial crisis, said Aaron Kohli, interest rates strategist at BMO Capital Markets in New York. Secured products, leverage and complexity combining to form a selloff. When you look at 2008 a lot of it was there.
Much like in 2007, the United States is currently experiencing an economic expansion, the dollar is weakening to its lowest level in years, politicians are calling for 3% economic growth, U.S. economic data is generally positive, but the stock market is in free fall.
This time around, rather than mortgage-backed securities and collateralized debt obligations tied to the housing market, the culprit appears to be volatility trading instruments in stocks.
And the volatility-linked instruments are leading the charge downward.
(Excerpt) Read more at finance.yahoo.com ...
I was alldoom and gloom in 2006 due to the sane housing bubble and corresponding massive private debt that could never be paid back. Illegal alien gardeners and fry cooks were buying $500,000 condos in the SF bay area with zero down payments and time bomb mortgages that started at 3% rates.
Banks held massive exposure to housing defaults in 2007. You could easily see a collapse of the financial sector comng.
Today, a vast amount of those dangerous loans vaporized with foreclosures and the banks wrote down trillions in losses. Fanny Mae backstopped everything. The Fed printed $10 trillion dollars and moved all the remaining bank loss exposure from private debt to public debt while also reflatingbhousing prices and the Sock Market, resulting in our $20 trillion in current National Debt.
As a result, the exposure to the USA’s private financial sector is nothing, NOTHING, compared to 2007. Nothing.
Yes, our public debt portends an eventual financial crisis far off in your children’s unfortunate future, but there is nothing similar about today’s financial health and the financial collapse of 2008 that the government prevented by printing $10 trillion in public debt.
Meanwhile, trump’s lower business taxes and rolled back regulations will put our economy on a tear of growth and real profits and wealth creation, unseen since the Reagan Economy.
Get ready for inflation again.
The rise in wages talked about is in fact inflation alresdy
You are completely wrong that the previous financial crisis was manufactured by the left. It was caused by greed and politics by BOTH parties, resulting in massive growth of catastrophic, un-collectable private debt from the housibg boom.
I will compromise with you. Of course both parties set up the circumstances for the "crisis". I happen to be of the opinion that it was "triggered" deliberately at just the right time to influence an election.
Can we agree to that?
All that has been lost so far are the last 2 months of gains. It takes us back to where we were at the beginning of December, approximately 2 months ago.
On November 8, 2016 the day President Trump won the election the DJIA ended the trading session at 18,332. If we added 10% to that which is a reasonable return for year over year growth, we would have been at 20,165 on November 8, 2017. But we were actually at 23,563. 2 1/2 months later on January 26, 2018 we were up to 26,616, an approximate 13% gain. That is an over 60% annualized gain; it signaled that we had reached the stage of a bull market commonly known as irrational exuberance.
It should not have taken a rocket scientist or even Jim Cramer to figure out that this was an unsustainable rate of return. All it took was a triggering event... and it could have been anything, for a “correction” to take place. In this case it was positive employment news which resulted in inflationary fears.
We are now back to where we were approximately 2 months ago. That is not much of a correction. It is possible we could loose all the gains that have occurred since President Trump was elected. That still would not be nearly as bad as our last major correction that began in October of 2007 at approximately 14,100 and continued down until March of 2009 at 6,626. This wiped out over 12 years of gains. For those of us who were invested in more aggressive stocks it was much worse than that.
Given this perspective from “recent” history, I am not alarmed by this 2 month loss of gains. This is still almost meaningless. It is not like we have a socialist anti-business president and congress in charge as we did from the beginning of 2008. Investors rightly concluded that Obama’s policies were going to be bad for the economy. At this point in time we have a pro-business president and good economic indicators. It is highly unlikely that this will be more than a short term correction.
I am not worried, there is a lot more growth to be made up for the lost time of the Obama and poor growth of the Bush years.
The market runup has IMHO been mostly about EXPECTATIONS of this, more than reality of it...
The real meaningful backing for the run up should happen this year... and if all goes well, a sane stabilization will occur... However, more than likely the exuberance will overshoot reality, and at some point a hard correction will occur... however, even after correcting I fully expect the market to be overall up HUGE compared to where we were in Nov of last year.
There is so much pent up growth potential from the last 8 years of absolute economic malaise and the far less than stellar growth of the prior 8, that there is a LOT of pent up growth coming...
MY guess would be, and I am no expert, that either late this year or sometime NEXT year, when the repatriations have ended, and the full effects of the tax cuts are obvious to their economic impact, you will see the exuberance lopped off as a correction takes us back to reality...
With that said, the market has to get a LOT higher than where it is, for me to think we are looking at a clear and present bubble popping like we had in 08.
Very fake news.
“....I cant help but wonder how many Soros-held interests are pushing the sell-sell-sell frenzy right now.....”
I’ve been an investor for many years and have always felt the market was just to large for any one entity to actually “manipulate” it. I still do. It was due for a correction and I believe what we’re seeing is a correction.
But I NEVER EVER trust libs, especially billionaire libs, that would try to do something like this....and it ain’t just old “gorgeous George” that’s out there either. There are a whole bunch of billionaire libs out there and they all hate the POTUS with a passion. Here’s one way that they could potentially do/did it: After POTUS was elected, they saw what the market was gonna do. They bought heavily across the market (probably coordinated between them) and just push/ride the market as it went on up there. When the timing was just right (say such as when their Royal Thighness and their Holy Anointed One become co-conspirators in this dossier BS), they buy PUTs against everything they originally bought that they rode on up and then immediately sell all those stocks like the world is ending. It drives the market down to where computer stop-loss trading kicks in and down she goes..and even more lower due to fear and panic setting in on the average guys. Those PUTs they bought just before they started selling end up being worth a fortune. They make out on the stock sale at the top, the PUT sale at the bottom and the “making POTUS look bad” sale after it comes down....it’s a great “win-win” for them and the overall liberal cause.
Now, IF anything like that is really going on and can be proven, they need to prosecuted. Personally, I think if such is happening, they should end up on the end of a rope because they’re screwing with millions of peoples’ retirement funds, etc.
You put in a hell of a effort for that list.
If interest rates are permitted to rise to market, the interest costs to the USG on the $20+ trillion debt will eat up every available tax dollar. Plus, there are the increased "interest payments" to the empty fake "trust funds" to account for. Republicans did themselves no favor by passing a 2 year increasing budget.
Nothing gets easier from here.