So many market professionals missed reading last year blue chip bear market of 2008 because they did not recognize the different markets that unfolded before their eyes throughout the year. If they disagree with this statement, then, their client’s accounts should be up for 2008. If that sounds too obvious, bear with me.
The major difference between an inexperienced and experienced NFL quarterback is the ability to read shifting defenses. Even experienced quarterbacks facing an unfamiliar defensive scheme can throw an interception on any given Sunday. The type of unfamiliar shifting market that occurred in 2008 is occurring again in 2009. Only bonds survived the hellish 2008 markets. Most bonds will not survive 2009.
We confronted in 2008, 1) a collapsing residential real estate market, 2) a banking crisis, 3) tapped out consumers, 4) rising energy prices, 5) the eve of a global recession, 6) an overbought stock market, 7) a credit freeze, and 8) denial of the first six items.
In 2009, we are confronting; 1) massive layoffs, 2) an oversold stock market, 3) artificially low but rising interest rates, 4) too much federal deficit spending and stimulus, 5) falling state and federal tax receipts, 6) a contracting economy, 7) a collapsed real estate market, 8) cautious consumers, 9) an erratic dollar, and 10) rising energy prices. So far this year, cash is king. On 06/05//09, the S&P 500 closed at 940.09 versus 1400.06 on 06/06/08 or 903.25 on 12/31/08. Investing in this market will only get tougher for the balance of this year.
The recession that began in 2007 will most likely end in the 3rd or 4th quarter this year. The worst of the old banking crisis is behind us. One-half of the 2002-2007 real estate market is dead and buried. The spring 2009 cyclical bull market ended the secular bear market 2008 down leg. The initial economic collapse from the frozen credit markets lay behind us. Without these problems, an economy can mend. However, before 2009 is over, we will also experience; the end of quantitative easing by the Feds, a 5% 10 yr T-note and 7% mortgage rate, a 700 S&P 500, the collapse of commercial real estate, additional declines in residential real estate, contracting lines of credit, 11% unemployment, a weaker dollar, higher fuel prices, and cautious consumers and businesses.
In any given year, these ingredients would pose a better than 50/50 chance of pushing a growing economy into recession. If you believe, the economy will grow out of the current recession this year, stay out of recession in 2010, and shake off the damage from 2008, based on the stimulus package passed by congress and newfound consumer demand - and cash to go with it, then drop back three steps and attempt the completion.However, if you throw an inception for a loss, with your client’s principal, you gambled again and loss.