This page has been archived and commenting is disabled.

Why The Bear Of 2015 Is Different From The Bear Of 2008

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Are there any conditions now that are actually better than those of 2008?

It's tempting to see similarities in last week's global stock market mini-crash and the monumental meltdown that almost took down the Global Financial System in 2008-2009. The dizzying drop invites comparison to the last Bear Market that took the S&P 500 from 1,565 in October 2007 to 667 on March 9, 2009.

But this Bear is beginning in circumstances quite different from 2007-08. Let's list a few of the differences:

1. Then: Markets and central banks feared inflation, as WTIC oil had hit $133 per barrel in the summer of 2008.

Now: As oil tests the $40/barrel level, markets and central banks fear deflation.

2. Then: China had a relatively modest $7 trillion in total debt, considerably less than 100% of GDP.

now: China's debt has quadrupled from $7 trillion in 2007 to $28 trillion as of mid-2014, an astonishing 282% of gross domestic product (GDP)

3. Then: Central banks had a full toolbox of unprecedented monetary surprises to unleash on the market: TARP, TARF, BARF (OK, that one is made up) rescue packages and credit guarantees, quantitative easing (QE), zero interest rate policy (ZIRP) and direct purchases of mortgages, to name just the top few.

Now: The central bank toolbox is empty: every tool has already been deployed on an unprecedented scale. Every potential new program is simply a retread of QE, yield curve bending, asset purchases, etc.--the same old bag of tricks.

4. Then: Central banks had a relatively clean slate to work with. Interventions in the market and economy were limited to suppressing interest rates in the post-dot-com meltdown era.

Now: Central banks have never stopped intervening since 2008. The market is in effect a reflection of 6+ years of unprecedented central bank interventions. Rather than a clean slate, central banks face a global marketplace that is dominated by incentives to speculate with leveraged/borrowed money established by 6 years of central bank policies.

5. Then: Interest rates had rebounded from the post-dot-com lows in 2003. The Fed Funds rate in 2006-07 was above 5%, and the Prime Lending Rate exceeded 8%.

Now: The Fed Funds Rate has been screwed down to .25% for 6+ years--an unprecedented period of near-zero interest rates.

6. Then: The average 30-year mortgage rate was above 6% from October 2005 to November 2008.

Now: Mortgage rates have been under 4% in 2015.

7. Then: The U.S. dollar only soared in financial crises as capital flowed to safe havens in late 2008-early 2009 and again in 2010.

Now: The U.S. dollar began a 20% increase in mid-2014, in the midst of what was generally perceived as a solid global expansion.

8. Then: The U.S. dollar fell sharply from 2006 to 2008, and again in 2010 to 2011, boosting the overseas profits of U.S. corporations that account for 40% to 50% of total multinational corporate profits.

Now: The rising dollar has crushed the overseas profits of U.S. corporations. The soaring USD has also crushed emerging market currencies and stock markets, and forced China to devalue its currency, the the RMB (yuan)--a devaluation that triggered the current global meltdown in stocks.

9. Then: The global boom 2003-2008 was widely viewed as a tide that raised all ships.

Now: Central bank policies are recognized as engines of inequality that have widened income and wealth inequality for 6+ years.

Are there any conditions now that are actually better than those of 2008? Or are conditions now less resilient, more fragile and more dependent on unprecedented central bank interventions?

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 08/24/2015 - 08:30 | 6461608 XAU XAG
XAU XAG's picture

HELP!

Mon, 08/24/2015 - 08:34 | 6461630 greenskeeper carl
greenskeeper carl's picture

Another one he forgot- then, fed balance sheet, 500B, now 4.5 trillion dollars. We. Are. Fucked. All they can do it print more, a lot more, possibly buying equities like the BOJ. And 85 bil a month won't do it if this actually is 'the big one'.

Mon, 08/24/2015 - 08:37 | 6461660 El Vaquero
El Vaquero's picture

Sure, they can do that, but what is a stock worth if the company goes out of business?

Mon, 08/24/2015 - 08:47 | 6461718 TeamDepends
TeamDepends's picture

ZERO. Zero is the new "yes we can".

Mon, 08/24/2015 - 09:00 | 6461842 Headbanger
Headbanger's picture

Please don't worry.

Mon, 08/24/2015 - 09:03 | 6461868 Dollarmedes
Dollarmedes's picture

Polar Vortex!!!! In August!!!

Mon, 08/24/2015 - 09:08 | 6461900 TeethVillage88s
TeethVillage88s's picture

If we have Bionic Penises ... Then Surely we can rebuild the Stock Market... with a Bionic Penis driven by the FED.

Mon, 08/24/2015 - 09:13 | 6461942 large_wooden_badger
large_wooden_badger's picture

I'll see your bionic penises and raise you some rehypotheticated vaginas. Si Sue Puedas!

Mon, 08/24/2015 - 09:22 | 6462018 spastic_colon
spastic_colon's picture

all it will take is the eventual rumor of the fed going into a meeting.

Mon, 08/24/2015 - 11:21 | 6463282 TeethVillage88s
TeethVillage88s's picture

Janet: Si, yes we can!!

She can bring back TAF Auction Facility for Liquidity.

Mon, 08/24/2015 - 08:50 | 6461739 McCormick No. 9
McCormick No. 9's picture

Under INGSOC, the value of a stock on the government controlled exchange is computed by the following formula:

Current five year plan completion index multiplied by the strategic value rating (ie military resource maintenance value), less current central bank intervention rating (as a sliding scale of monetary valuations), and this computed value must be temporized by current Leadership statements, then rectified under the leading journalistic historic statements (ie, what is our current history?).

The resulting stock value is then reported by official government officials, and has transactional validity subject to taxation until the next scheduled pronouncement.

Under INGSOC, companies cannot go bankrupt, as bankruptancy was outlawed in 2015.

Mon, 08/24/2015 - 10:11 | 6462621 Chuck Walla
Chuck Walla's picture

You forgot to double seasonally adjust the formula and results.

 

FORWARD SOVIET!

 

I get a stiffy when people talk of 5 year plans.

Mon, 08/24/2015 - 08:49 | 6461736 jbvtme
jbvtme's picture

HELP...is this the acronym for the next round of QE?

Mon, 08/24/2015 - 09:00 | 6461845 XAU XAG
XAU XAG's picture

Yes...................yellen on the phone to the Bernak and Greenspan.........................but thier phones are not in a servicable area.

Mon, 08/24/2015 - 09:08 | 6461909 jefferson32
jefferson32's picture

Homeland Economic Liquidity Program

 

Mon, 08/24/2015 - 09:31 | 6462139 mayhem_korner
mayhem_korner's picture

 

 

The scene at Mr. Yellen's abode...

https://www.youtube.com/watch?v=5NNOrp_83RU

Mon, 08/24/2015 - 08:58 | 6461822 negative rates
negative rates's picture

We're here to hellp.

Mon, 08/24/2015 - 08:47 | 6461611 Chuck Knoblauch
Chuck Knoblauch's picture

China wants new terms.

And they will get them.

Young fool.

Mon, 08/24/2015 - 08:32 | 6461620 B2u
B2u's picture

Time to convict Benarnke and Yellen.  30 years in prison is a good start.

Mon, 08/24/2015 - 08:37 | 6461657 The man with po...
The man with pointy horns's picture

Nothing short than the death penalty.

Even Jesus turned violent against the money changers when he flipped over their tables in the Temple of Solomon. Shortly afterwards the Jewish divines sought Jesus' death and he was crucified within a few days.

Mon, 08/24/2015 - 08:39 | 6461678 InsanityIsWinning
InsanityIsWinning's picture

Don't forget Greenspan . . . this credit expansion started under Reagan with Greenspan at the fed.

Mon, 08/24/2015 - 09:09 | 6461920 TeethVillage88s
TeethVillage88s's picture

We can use the Bionic Penis on them... we'll turn it up to Ludicrous Speed.

Mon, 08/24/2015 - 09:17 | 6461977 Niall Of The Ni...
Niall Of The Nine Hostages's picture

Force-feed them molten lead till they die. Put the footage on Youtube as a warning to others.

In all normal societies to counterfeit is death. This is how counterfeiters are put to death.

Mon, 08/24/2015 - 08:33 | 6461624 TeamDepends
TeamDepends's picture

Then: PMs were not as manipulated as they are now (100%).
Now: AHAHAHAHA silver is down 3% today! All you clods waiting for
$10 silver will be waiting a long long long time.

Mon, 08/24/2015 - 08:37 | 6461661 XAU XAG
XAU XAG's picture

Gold is Holding..........................at the moment.

 

 

That's the big differance between Gold and Silver.....................Silver is more of a commodity than Gold

Mon, 08/24/2015 - 08:47 | 6461723 mayhem_korner
mayhem_korner's picture

 

 

That's not gold, it's GLD.  There are 4+ million oz of claims on COMEX's ~350K oz of physical/eligible. 

If only the GLD-holding sheep would demand to hold the physical, the true price of gold would be revealed. Nonetheless, the fact that the paper version is holding has got to be making the fiat printers nervous (except China, who I suspect has the biggest pile of "the yellow metal").

Mon, 08/24/2015 - 09:00 | 6461852 negative rates
negative rates's picture

Looks more like a plank walker at the end of the plank to me.

Mon, 08/24/2015 - 08:34 | 6461631 mayhem_korner
mayhem_korner's picture

 

 

#3 is the key

CBs will continue to battle it out, but now they are warring with each other, rather than collaborating.  Whoever has the most dry powder left (or the best Poker Face) is going to win, and then lose (by being the Alpha target for the ensuing cyber attacks, bombings, etc). 

Mon, 08/24/2015 - 08:34 | 6461632 Miles Plastic
Miles Plastic's picture

The can't miss, never fails tool that comes next is war.

Mon, 08/24/2015 - 08:35 | 6461644 JustObserving
JustObserving's picture

China's debt has quadrupled from $7 trillion in 2007 to $28 trillion as of mid-2014, an astonishing 282% of gross domestic product

Misleading as China's GDP has grown.

It was 158% of GDP in 2007.  It was 121% of GDP in 2000.

Chinese government debt is 55% of GDP, much lower than USA's.

http://www.businessinsider.com/chinas-debt-is-growing-faster-than-its-ec...

Mon, 08/24/2015 - 08:36 | 6461649 SoDamnMad
SoDamnMad's picture

So the CIA pops a few EMPs over all the major Central Bank Centers and all the servers get erased eliminating what debts are owed in bonds and securities. 40% of the populations starve to death.  Now let me figure out who wins in this scenerio.

 

Mon, 08/24/2015 - 08:37 | 6461662 InsanityIsWinning
InsanityIsWinning's picture

Well that doesn't paint a pretty picture . . .  

Mon, 08/24/2015 - 08:38 | 6461666 jpc578
jpc578's picture

I see two potential moves that policy makers could take.

1) Central banks could buy up debt and, without reckless regard to their own solvency, forgive a some or all of it.

2) Central banks could print money and deposit it directly in individuals' bank accounts without purchasing assets.

Mon, 08/24/2015 - 08:41 | 6461693 The man with po...
The man with pointy horns's picture

Option no. 2 actually happened in 2009 to prevent a US government bond sell off.

Mon, 08/24/2015 - 08:48 | 6461726 lasvegaspersona
lasvegaspersona's picture

All paths lead to hyperinflation. There ia already 5 trillion in non CB hands ready to panic into cash and real goods. CB printing would be just extra wood for the fire.

The dollar is in trouble and the US NPV of future obligations cannot be serviced with the current minetary system. It is default or HI. No fiat currency has ever chosen default...leaves a bad taste (makes it look like there was irresponsible planning)

Mon, 08/24/2015 - 09:11 | 6461933 jpc578
jpc578's picture

I think we are getting to the point where policy makers will openly embrace high rates of inflation in a misguided attempt to revive the economy.

Mon, 08/24/2015 - 08:53 | 6461781 mayhem_korner
mayhem_korner's picture

 

 

Remember the scene in Titanic where the Murdock tosses Hockley's bribe money back to him, saying "your money can't save you any more than it can save me"...?

That's the risk of move 2).  And why the CBs won't do it.

Backdoor liquidity injections to the Fed-controlling banks to prop up whatever asset class is deemed most likely to stem the panic.  Count on it.

Mon, 08/24/2015 - 08:40 | 6461683 tok1
tok1's picture

There is only a problem if the bonds crash (then the Govt has financing issues) and a real crisis is occurring .

Weak equities don't impact the govt or FED's ability to control things.

Mon, 08/24/2015 - 09:11 | 6461934 conscious being
conscious being's picture

Equities are held as collateral for all kinds of entities like insurance companies, pension funds. Equities represent the last ring of defense around the bond complex. Equities matter man.

Mon, 08/24/2015 - 08:41 | 6461690 Catullus
Catullus's picture

The difference between now and 2008 is that 2008 you knew who was shitting the bed. It was the banks and anyone using MBS as collateral.

There's nothing very obvious going on right now. Except China is China and they're slamming the door shut on capital flight.

Mon, 08/24/2015 - 08:41 | 6461691 falak pema
falak pema's picture

2008 = Buddy Bear Paulson; the man from Squid.

2015 = Teddy Bear Yellen; the woman from Krugman's academy who can't say no to QE/ZIRP.

But the true Bear lover who made this huge QE honeypot remains the Ben of Big ZIRP; what a twirp.

Mon, 08/24/2015 - 08:46 | 6461716 csmith
csmith's picture

Are there any conditions now that are actually better than those of 2008?

 

Here's a big one:  U.S. bank balance sheets are in the best shape in 15 years. Equity levels have doubled since 2009, and they have more cash than they know what to do with.

Mon, 08/24/2015 - 08:58 | 6461829 mayhem_korner
mayhem_korner's picture

 

 

Interesting way of demonstrating your idiocy - using a post crash reference point (2009) to make inference about the pre-crash (2008) state.

In 2008, the market had also risen dramatically from the dot-com bubble burst.  Banks balance sheets in 2008 were also touted as being "in great shape" due to the rising real estate bubble. 

Try coffee.  It helps.

Mon, 08/24/2015 - 09:16 | 6461964 Son of Captain Nemo
Son of Captain Nemo's picture

I think BillionDollarBonus changed his name!

Mon, 08/24/2015 - 08:48 | 6461727 Son of Captain Nemo
Son of Captain Nemo's picture

Are there any conditions now that are actually better than those of 2008?

You only wish it was 2008...

Pucker up and seal that chocolate "starfish" of your's with the biggest kiss!

Mon, 08/24/2015 - 09:02 | 6461772 PrimalScream
PrimalScream's picture

This Bear Market is very different.

I said this before.  This is NOT a "buy the dip" phenomenon.  i am  sure many people will try.

A lot of CEO's and companies MUST sell their stock, or lose "big time" from stock options that were purchased at very unrealistic valuations.

 In addition, the "Global Consumer" is dead.  Check commodities.  No-one is buying.  There is a reason for that.

There are a LOT of American investors who have been conditioned to believe that the Fed is like their Mother.  This has created a whole generation of Crybaby Investors. They seem to believe that Ms. Yellen will wipe their face and brush the dirt off their portfolio when they fall over.

WRONG this time. 

Mon, 08/24/2015 - 08:53 | 6461773 29.5 hours
29.5 hours's picture

'Tis but a scratch. A bit early to be making comparisons with any real crash in the past.

Mon, 08/24/2015 - 09:31 | 6462138 chunga
chunga's picture

I just heard a TV girl say this time is different because everybody has tons of money saved up from their awesome new high-paying jobs!

Mon, 08/24/2015 - 08:54 | 6461786 Brazen Heist
Brazen Heist's picture

Im telling u, I wouldn't be surprised if selling gets banned. The West is fast becoming the very thing is supposedly "fights" against: tyranny.

Mon, 08/24/2015 - 09:01 | 6461855 Nothing Ever Happens
Nothing Ever Happens's picture

Who's got my cleanest dirty shirt?

Mon, 08/24/2015 - 15:38 | 6461958 large_wooden_badger
large_wooden_badger's picture

Well I woke up Monday morning, with no way to sell my stocks that didn't hurt

Mon, 08/24/2015 - 09:04 | 6461871 buzzsaw99
buzzsaw99's picture

one phone call from buffett or blankfein and yellen makes it rain green bitchez

Mon, 08/24/2015 - 09:04 | 6461874 walküre
walküre's picture

We all knew this was coming.

Good cleanse all around.

Time to reward the producers again and enough with the paper gimmicks.

Raise the rates slowly and the markets will eventually adapt and digest this reality. There's allot of meat on the bones in Europe and North America.

Mon, 08/24/2015 - 09:13 | 6461944 Niall Of The Ni...
Niall Of The Nine Hostages's picture

On what planet will this reward the producers of anything but Fed-confetti? The plan is to ruin everyone who produces things we actually need (oil, cash crops, metals) and steal their hard-won wealth.

The whole point of $40-a-barrel oil (just for example) was to bring down Vladimir Putin and steal Russia's oil.

Mon, 08/24/2015 - 09:06 | 6461888 Niall Of The Ni...
Niall Of The Nine Hostages's picture

This time the 30,000 have had seven years to have manufacturers of iTurds buy back stock with money borrowed at near-zero percent, so the 30,000 can hoard cash for a rainy day---like the day the Saudis started giving away oil in a failed attempt to bring down Vladimir Putin, allowing the 30,000 to buy busted US shale oil firms for a fraction of fair value.

When all is said and done, and oil is back to fair value---far north of USD100 a barrel---the 30,000 will be richer than ever.

Mon, 08/24/2015 - 17:57 | 6465751 lordkoos
lordkoos's picture

When oil gets back to $100 a barrel it will be more because of inflation than demand.

Mon, 08/24/2015 - 09:17 | 6461976 large_wooden_badger
large_wooden_badger's picture

RELEASE THE ACRONYMS

Mon, 08/24/2015 - 09:18 | 6461986 novanglus
novanglus's picture

Isn't the timing obvious to anyone else?

The market is crashing in response to the Ashley Madison leaks.

What would be a bigger story?

Who's more likely to be listed in that dump?

This is a case of oh look, a squirrel!

Mon, 08/24/2015 - 09:18 | 6461989 NorthernPike
NorthernPike's picture

In an end state one year from now, things will look much the same just a little shabbier.

Mon, 08/24/2015 - 09:28 | 6462017 TeethVillage88s
TeethVillage88s's picture

Uncle Sugar is not paying attention due to the Parties every night in Washington DC:

- Home ownership rate falls to 50 year low...

- As Minimum Wages Rise, Restaurants Say No to Tips, Yes to Higher Prices...
- Millennial chose to live on trains rather than pay rent...
- 'I didn't want to live anywhere anymore'...

- SWAT Team Raids Wrong Home, Holds Naked Mom, 2 Toddlers At Gunpoint...

- As immigration judges' working conditions worsen, more choose retirement...

edit:

"5. Then: Interest rates had rebounded from the post-dot-com lows in 2003. The Fed Funds rate in 2006-07 was above 5%, and the Prime Lending Rate exceeded 8%."

Yeah, lots of counter-intelligence operations going on to help us forget the values, principals, conservative guidelines we used for accounting, auditing, financial ratings, financial instruments,... the value of savings and interest rates on savings... the value of having anti-trust legislation... the value on control of the Money Trust and their power over the Federal Government and money.

Mon, 08/24/2015 - 09:24 | 6462029 large_wooden_badger
large_wooden_badger's picture

The squid sends his warmest regards to all longs today

Mon, 08/24/2015 - 09:24 | 6462031 fromthinair
fromthinair's picture

The spread of evil is getting more and more global. Charles, you are right and so are most of your cohorts including zh. Is this the beginnig of the end??? I do not know. The end is going to look very very bad. So will have to see what is unfolding. 

Normally this was the trend so far for the last 7-8 years

1. Fridays used to mark reversal of selling of the week. 

2. If not Friday, then Monday used to be the reversal of the last week.

3. This time if US markets do not show reversal today, then something is unfolding that will not be a surprise to most informed people. 

 

Lets see how it unfolds.

Charles, a simple story for you and zh - "the tale of two uncles". Moral of the story have been left out for you to decide.

http://just-a-thought-from-thinair.blogspot.com/

Mon, 08/24/2015 - 09:28 | 6462095 fromthinair
fromthinair's picture

it is a full blown panic in the futures market. Uncle Ben, what did you do?  You did not see it coming? 

Mon, 08/24/2015 - 09:29 | 6462111 mayhem_korner
mayhem_korner's picture

 

 

Wait...

I don't see on the list: "In 2008, banks marked their 'assets' to market"

Mon, 08/24/2015 - 09:33 | 6462158 2500saturdays
2500saturdays's picture

This selling ban idea I don't get. If no one is 'allowed' to sell how can I buy dammit !

Mon, 08/24/2015 - 12:47 | 6463924 gcjohns1971
gcjohns1971's picture

Number 4 is wrong, simply wrong.

Central banks only ever had money printing as a tool in 2008...and since 1914...and a thousand different ways of implementing it while convincing you they were actually doing something else.

They still do...except they now lack credibility to convince you that they aren't expanding credit...printing money, because of number 9.

If it were so mysterious then how did Mises nail it a cenury in advance?

Mon, 08/24/2015 - 13:49 | 6464302 atlasRocked
atlasRocked's picture

We are in another unbacked credit based fake expansion. Stimulus never creates sustainable, intrinsic private economic activity. To imagine the liberals would implement a policy that empowers capitalists is actually a form of madness, IMHO.

 

The market is FAR worse off than 2008.  Stimulus WORSENED every health indicator, made the markets DEPENDENT on easy money, not on intrinsic growth.

Do NOT follow this link or you will be banned from the site!