Mon 11/21/11 5:18 PM – Is This Like 2008 or Just More 2011?

I hear people talking about this being like the Fall of 2008. Let’s go back and read selected (some slightly modified) headlines from 2008 from www.creditwritedowns.com/credit-crisis-timeline/

 2008 03 14 JPMorgan and Fed Move to Bail Out Bear Stearns
 2008 06 02 Morgan Stanley, Merrill, Lehman Ratings Cut by S&P
 2008 06 05 MBIA, Ambac, $1 Trillion of Debt, Lose S&P AAA Rating
 2008 07 07 Freddie Mac, Fannie Mae Plunge on Capital Concerns
 2008 07 11 IndyMac Seized by U.S. Regulators Amid Cash Crunch
 2008 08 12 Banks’ Subprime Losses Top $500 Billion on write-downs
 2008 09 07 U.S. Takeover of Fannie, Freddie
 2008 09 15 Lehman Files Biggest Bankruptcy
 2008 09 15 Bank of America Acquires Merrill Lynch
 2008 09 15 Fed Widens Collateral, Banks Set Up $70 Billion Fund
 2008 09 16 Fed to lend $85 billion to AIG, take 80 percent stake
 2008 09 25 WaMu Seized by U.S., Assets Sold to JPMorgan in Record Failure
 2008 10 03 Dutch part of Fortis is nationalized
 2008 10 03 Greece joins bailout stampede as Germany vows no blank cheques
 2008 09 30 Irish government guarantees bank deposits
 2008 10 07 UK makes massive rescue plan for banks
 2008 10 08 Fed Lends Directly to Corporations as Commercial Paper Market Seizes
 2008 10 13 Fed Says ECB, Others to Offer Unlimited Dollar Funds
 2008 10 13 EU Nations Commit 1.3 Trillion Euros to Bank Bailouts
 2008 10 13 Germany Pledges EU500 Billion in Bank Rescue Plan
 2008 10 15 EU backs emergency accounting changes to hide bank losses
 2008 11 24 Citigroup Gets U.S. Rescue From Losses, Cash Infusion
 2008 12 30 IndyMac Sold to Private Investors
 2009 01 15 Banks’ Loan Losses Could Reach $2 Trillion

Yes, the 2011 headlines and volatility have been unsettling at times but they are nothing like 2008, at least in the US.

Add to the 2008 headlines the following market action. Remember this widely circulated chart comparing 2008-09 to 1927, 1973 and 2000?


Click Chart to Enlarge

This year the stock market is barely below breakeven. The bad news is mainly in Europe. Asia and other emerging markets seem to be successfully slowing from growth and inflation that was too strong. The economic news here has been pretty good lately.

As for bad news in the US the Supercommittee seems to have failed to come up with spending cuts in place of what is set to automatically happen in January 2013. If you were betting that they would succeed, call me the next time you want to bet on politicians doing the right thing. I gave them a 10% chance.

Note that the automatic cuts don’t take place until 2013. Even those cuts are heavily back-end loaded and will be relatively minor in 2013.

The only real question is how much will recession in Europe and Eurozone debt troubles in the Eurozone affect US markets. Well, they are not positives and will likely depress our markets somewhat for a while.

Remember this, the US market is selling at 12x earnings for 2012, 25% below the average. European markets sport P/Es in the single digits. Sometime in the next 0-3 years Europe is going to be ridiculously low-priced with high dividends.

I am not unmoved by losses in the markets or in client accounts. On the contrary, I do everything prudent to try and lessen them. Since I am paid on the value of client accounts, client account losses hit me directly in the pocket-book.

But, the long-running nature of the poor financial news the last four years has people weary and they remember the panic of 2008-09 like it was only, well a short time ago. Me too. But, it is the length of all this that is most difficult. The current situation and market action is far from a 2008 repeat at this point, though I monitor things every day.

In the meantime, I favor income investments first, blue-chip high dividend US stocks second, then emerging market stocks and bonds.

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