This is not 2008!
Many people are drawing parallels between this current market selloff and the credit crisis that nearly ended in depression a few years ago. I don’t see any.
The downgrade of the US AAA rating is nothing like the collapse of Lehman Brothers, Bear Sterns, or any of the other firms that went under.
The credit crisis of 2008 was systemic. It was the culmination of the housing bubble and the realization that that every bank had been lending gobs of money to absolute idiots in order to fund the purchase of houses they couldn’t afford. And this had been going on for years.
The entire world suddenly woke up and found that there were bonds rated AAA but comprised of junk quality mortgages. Nobody knew which investment was quality and what was toxic, and nobody wanted to own anything- At all.
The market crashed. Business, and the economy, nearly came to a complete halt .
Corporations laid off 3,000,000 people in 2008-09. Then came Tarp, QE1, QE2…the economy was on life support.
Flash forward to today:
If you want to buy a house in 2011 you need to have sparkling credit, 10 years of income history, 20% down, and the ability to lend the bank more money than you are trying to borrow.
Corporate America cut every wasteful expense, reduced inventories, curtailed spending, and today’s companies are lean operating machines. That is why earnings beat expectations in the first 2 quarters of 2011.
Today we are adding 150,000 jobs per month. True, it will take a long long time to gain 3 million jobs back at that rate, but we are going in the right direction.
Additionally, interest rates are still low and inflation is still relatively tame.
This market selloff/crash is all about fear. There is no more stimulus- zero – and that is scary. But zero stimulus is a good thing; now we get to see the economy stand on its own. Couple the removal of stimulus with several other potential bogey monsters that loom on the horizon (Greece, inflation, rising interest rates) and fear is understandable.
But these monsters are not new. Things are not substantially different than they were 2 weeks ago. Fear and greed are what make the markets move, and right now fear is winning. In 6 months this market swoon will be a distant memory.
