Financial Crisis: Ten Years Ago, the World Changed

Ten Years Ago, The World Changed

A rolling crisis born of decades of mistakes finally erupted across the US financial landscape approximately ten years ago, with each month of that year highlighting a new and more ominous dilemma for US markets.

The Financial Crisis of 2008 goes by many names – The Great Recession (which doesn’t capture the magnitude of all that happened during this time), the Banking Crisis (which unfairly blames banks alone for the collapse) – any number of “titles” will most likely not provide an adequate description of what took place.

Exactly ten years ago during this month, July of 2008, the financial industry saw massive upheaval and government action which would have been unimaginable just a few years before.  But a lot had already transpired … decades of bad government policy and unwelcome government intervention into the marketplace had already distorted US real estate markets.  And now, 2008 saw the crisis unfolding almost nightly on the cable business channel.

  1. October 2007 –  Official beginning of the recession; Florida real estate market collapsing.
  2. February 2008 – Bush signs into law a tax rebate bill, and increases FHA loan limits and lowers down payment requirements as loan borrowing/lending is rapidly declining.
  3. March 2008 – Bear Stearns, with substantial exposure to mortgage backed securities, was bailed out by the Fed and eventually forced into a sale to JP Morgan Chase.
  4. April/May 2008 – Through the “Term Auction Facility,” the Federal Reserve lent a then record $150 billion to investment banks; the Fed Funds Rate was dropped for the third time that year – to 2%.
  5. June 2008 – Fed bank loans break the record again, lending $225 billion to distressed banks with massive loan losses from defaulting real estate.

And then, the calendar turned to July …

By now it was fairly evident that the traditional method of allowing banks and financial companies to file bankruptcy and/or reorganization had been disregarded, and throwing tax payer money at the failing institutions was the preferred method of stemming the tide of the crisis.  No one, however, was prepared for the events that occurred in July.

**The two BIG July 2008 events which headlined the ongoing financial crisis of that year:

  1.  “Secretary Paulson asks Congress for a $25 billion bailout of Fannie Mae and Freddie Mac”: Looking back, the numbers seem so small compared to the gargantuan debt and bailout numbers we have seen since.  However, at the time, it was a body-blow to the stock market.  Street guys knew (A) if the Feds were moving in it was probably already too late; and, (B) it was not going to be enough.  Instead of stabilizing markets, it rattled them further, and set the stage for what would become inevitable – the complete nationalization of the Fannie and Freddie marketplace.
  2. “IndyMac Bank failure … depositors angry”: In a prelude of what would come in the fall, IndyMac Bank was a mid-sized regional bank and the first traditional bank failure of the year (Bear Stearns being an investment bank and financial services company).  At the time, FDIC insurance only covered $100,000.00 of a person’s bank deposits (the crisis would lead to reforms later that would include an increase in FDIC coverage up to $250,000.00).  Angry depositors pushed the local police force to the brink, as they demanded access to the bank and access to their accounts.  The televised events spurred widespread fear of further calamity with other banks throughout the country.

IndyMac Bank failure … depositors angryIndyMac Bank failure … depositors angry

 

Many more dominoes were still to fall in that fateful year of 2008.  August and September would not be kind to markets, nor to many of the nation’s oldest and most famous banking institutions.  At the onset of the Federal takeover of Fannie and Freddie, and the beginning of traditional depositor bank failures in the Midwest, the public remained largely unaware of the declining stock market………most advisors were simply saying it was “time to buy” as stock prices fell.  “Buy low, sell high” – a long standing mantra on Wall Street – proved disastrously wrong over those remaining months in 2008.

Ten years ago was proof in our lifetimes that what goes up must come down, and many times we are too late in taking action to protect our hard-earned money.  Make sure you are not too late when the next downturn becomes a market collapse.  Call now for safe and simple principal protection products for your investment portfolio. (877) 912-1919

Downward Pressure on Stocks

Downward Pressure on Stocks

The last few weeks we have discussed geopolitical chaos and their impact on the market.  This week is no different. What is unique about the era we are living through is that social media and 24-hour news cycles have not made things more transparent, but in fact quite the opposite – more confusing and harder to understand.

But what is not hard to understand is that you can manipulate the market with government intervention, but ultimately, what goes up must come down.   At some point, supply will exceed demand, and “risk appetites” become “risk aversion.”

Three major variables remain in play that can hurt US markets.  Everyone knows there are not just three  variables impacting markets, and many other positive events remain in place.  But when considering safety of principal once you have a sizable portfolio to protect, any variable that increases market downside risk has to be weighed heavily.

I. 3 Major Variables That Will Put Downward Pressure on Stocks:

  1. “Trade War with China is brewing”: This week stocks were weakened by threats from President Trump to levy 10% tariffs on more than $200 billion in Chinese imports, substantially upping the ante from the original 10% tariff on $50 billion in Chinese imports.  One US trade official stated in Reuters that “China was vastly underestimating the President’s belief in stopping unfair trade practices.”
  2. “Tech regulations are tightening”: The FANG’s—Facebook, Amazon, Netflix and Google—have driven the market for several years now.  Many analysts believe things are about to change.  While the current administration has regularly cut regulations across the board and have been credited with much of the deregulation helping with economic expansion, that has not been the case for the tech stocks.  Aside from record earnings, there is an expected flurry of regulatory action with the tech giants, especially with the most recent issues regarding personal privacy.  Many are advising caution for the investing public.
  3. “Political uncertainty here and abroad”:  Southern border crisis … rising gas prices … German government in turmoil … Italians voting for conservative government … failed states in Latin America … aside from the trade wars listed above, the world in chaos remains a constant risk for markets here in the US.  Portfolio’s tied to US multi-nationals run the risk of quick downturns, but most likely, stocks will continue to fee downward pressure thanks to a combination of all of these events.

Stock prices have been immune to geo-political events for years now … or have they?

Fourth quarter of 2015 was particularly gruesome for markets thanks to Chinese currency manipulation.  There were major drops in the spring of 2010, the fall of 2011 and the fall of 2013 … we need not revisit the three major corrections over the last 20 years as examples we have discussed so many times.

There are some positive trends.  We have mentioned them previously and they include things like extraordinary earnings reports, full employment, and record revenue.  The market, while having a tough week, remains at unprecedented highs!

But when you review the data and take Fed rate hikes into account, there is significant downward pressure on stocks. It would also be wise for investors to consider principal protection as a responsive strategy to such pressure.  The fact that there is so much news pointing in both directions confirms the point:  we don’t know when to grab the falling knife.  Trying to time the market has a predictable outcome, and it is usually bad.

Call now to speak with a Ty J. Young advisor about protecting your portfolio from market losses. 877-912-1919

5 Reasons the Stock Market Looks Good!

5 Reasons the Stock Market Looks Good!

The data can seem overwhelming, and we have written about the global chaos which can threaten markets. But the argument in favor of continued economic health and US stock market gains is a compelling one.

Market growth has been aided by the strengthening of monetary policy and improved tax policy, which has in turn sparked growth in US businesses and GDP.  Flattening tax rates and raising interest rates have freed up business decisions on hiring and payroll – making the free market “freer” again.  Congress remains a wild card, and fiscal policy has been debt riddled for over a decade.   But getting 2 of the 3 big ticket policies RIGHT has taken an economy propped up by government money printing and instead allowed free market decisions to drive up profits and stocks.

Here are the top 5 reasons this market should remain bullish for a while:

  1.  “Analysts see +4% growth in second quarter GDP”: First quarter numbers were only 2% after a strong 2016.  However, first quarter’s usually see a post-Christmas slump.  The personal income and household wealth numbers from April, combined with May preliminary numbers, suggest a 3rd quarter growth rate sizzling at above 4%!
  2. “Earnings have been impressive and robust”: Chipotle, yes, Chipotle – earnings up 36% in April ….. Amazon up triple per share compared to analysts estimates…..Apple up, Netflix up….there is no escaping that as earnings go up, stocks go up, portfolios go up, people spend more……you get the trend, and the trends are your friend.
  3. “Record-low unemployment”: The unemployment numbers reached their nadir in November 2009 at 10.1%, and steadily improved since that time.  But still – high 4, close to 5% unemployment seemed to be the fixed rate …. until now.  Unemployment has dropped below 4% for the first time since 2000.  Improved tax and monetary policy have unleashed free market incentives and business expansion …. even the more accurate labor participation rate has improved …. minority employment is the best in forever.  No doubt, the economy is showing its strength in numbers.
  4. “Household income is up from pre-recession levels”: The 2018 first quarter Federal Reserve report indicated homes with a family of four are now earning 61K a year on average, higher than the 2007 numbers which were 57K a year …… personal income is up, as is household net worth.  Total household net worth is at 100 trillion at the end of the first quarter, highest ever on record, and 7 times higher than disposable income.  And those averages come with improved income distribution, as both low income and middle-income households gained the majority share of increases in net worth, with the smallest gains going to the top 1%.
  5. “All job sectors have seen increased wage growth”: Information technology jobs are paying $39.40 an hour….Financial services are up to $34.77 an hour ….. Transport and utilities are up to $24 per hour ….. Education and health care are up to $26.90 per hour ….. Business services are up to $32.18 per hour …. across ALL sectors, wages are going UP!

Lots of reasons to focus on the positive data points in the economy.  Regardless of the unprecedented run up in GDP and the stock market, the prudent investor looks for principal protection products – where you can participate in market gains, but have none of the losses when e inevitable downturn occurs.  Call now for to learn about the only three ways to keep your money protected! 877-912-1919