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Guess what? It IS 2008, or at least late 2007!
From Peter Tchir of TF Market Advisors
For at least the past year, whenever there is any decent sell-off in stocks, virtually every perma-bull trots out the tired platitude that “it isn’t 2008”. Concern over sovereign debt problems in Europe get brushed aside with a simple comment that “it isn’t Lehman”. Well, guess what, it is starting to feel a lot like 2008 again, or at least the summer of 2007.
The market is selling off today on rumors and fears of some European bank being on the brink of default. Monday, it was BAC that was rumored to be in big trouble. Markets are moving again because of rumors of bank problems. That sounds a lot like 2007 and 2008 to me. People are shooting first, asking questions later again. Any of SocGen, Intesa, Dexia, BAC are big enough to provide the market with a “Lehman moment”. Notice the geographical diversification? The contagion was never really at the sovereigns, it is at the banks. I have argued over and over that each sovereign problem was relatively independent; whereas, the banks are all inter-connected.
I think we should have learned from 2008, that banks in particular take a long time to default. They have many ways to raise money, and I’m sure the Fed and ECB would accommodate them, so I doubt default occurs any time soon, but that is not the point, the point is that markets are moving on fears that they could. All the disaster scenarios that the perma-bulls have said aren’t in play this time, are back on the table. Lots of money was made shorting banks that got into huge trouble. Lots of money was made buying banks that had crushed on overly aggressive rumors of their demise. It is hard to believe that just a few months ago, the CEO of at least one of these companies was complaining about higher capital requirements and has been trying to pay a dividend. It is hard to believe, but as someone pointed out to me, it was hard to believe Lehman didn’t do a big capital raise in between March and September 2008.
Just like in 2008, liquidity has been fleeing asset class after asset class. Liquidity fled the European sovereign debt market months ago, and has left other markets, finally deserting U.S. equities in the past 5 days. I have ranted about the markets being broken, and it is this lack of liquidity that I am lamenting. Assets can go up and down in a broken market, they just happen to move far more than you would expect on any given news or rumor. $2.2 trillion of Spanish and Italian debt got re-priced by 100 bps in 3 days. Assuming an average duration of 2.5, that is a €55 billion change in value of the debt of those two countries. All from purchases alleged to be less than €10 billion. Put simply, the market is broken.
Small and nimble positions remain the order of the day. I still have a few IG200 hats, which I hope don’t have to come out again. I also have an IG20 hat. It is actually an IG200 hat that an incredibly frustrated bear crossed out the last zero in utter frustration at stock’s relentless climb late last year.
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07-08 started as strictly a real estate bust and banking crisis.
That was routine after every GOP administration since Nixon (most notably with S&L crisis and real estate bust after Reagan)
SO many pundits and the Fed thought they would only need to apply the same principles again and everything would be fine: remember the incessant talk of selling the toxic assets to investors at 'bargain prices' that they would later make a killing on?
What we have now is an economic crisis: a systemic failure (sovereign and central bank crisis) and a climax failure of MMT as an economic model (call it post-Keynesian if you prefer).
That's a very different and infinitely more serious crisis which has major geo-political and even social implications. There are no easy solutions, no quick fixes, no easy ways out. The time horizon is decades, not months or a couple of years. The dangers are unquantifiable.
caviar,
If I was a cynic, I'd believe this is the harvest and cull time spoken of by many critics of fractional reserve & Keynesian systems.
Or, stated another, maybe less cynical way, the "boom-bust cycle" at work.
But I'm a cynic and maintain it's harvest and cull time.
So much for 2011 being a repeat of 2010.
Big swings, large rebounds followed by Chronic Weakness. Big drops saved by PPT. FED and everyone in a panic but hapless. President clueless and spewing useless happytalk. Systemic debt failure. Dollar strength and currency manipulation.
The only new thing is gold and silver being hard as nails this time.
Deflation is a bitch
Sometimes it helps to ask what the differences are.
Since I'm tired of dealing with such arrogance, and since you all are so damned smart, I'll leave the answering to you.
check out the 2008 redux article...i think it answers your question about differences..
Booyahh!!! Rally... :))) I have half screen Green
stocks.. Humans beating up hedge funds machines..
A solvency crisis is precipitating broken markets and their commensurate illiquidity. It's that simple. Confidence in securitized paper shuffling out the window in '08, the "services economy" died, leaving a stripped shell of a physical economy to carry the burden of a massive debt incurred during the securitization regime's build out. These debts can never be repaid. Hence broken markets, illiquidity, and fast approaching recognition, openly, that the whole thing is insolvent, plain and simple.
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