Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
THEY DON'T RING THE BELL AT THE CRPTO MARKET TOP! - 20th Dec 24
CEREBUS IPO NVIDIA KILLER? - 18th Dec 24
Nvidia Stock 5X to 30X - 18th Dec 24
LRCX Stock Split - 18th Dec 24
Stock Market Expected Trend Forecast - 18th Dec 24
Silver’s Evolving Market: Bright Prospects and Lingering Challenges - 18th Dec 24
Extreme Levels of Work-for-Gold Ratio - 18th Dec 24
Tesla $460, Bitcoin $107k, S&P 6080 - The Pump Continues! - 16th Dec 24
Stock Market Risk to the Upside! S&P 7000 Forecast 2025 - 15th Dec 24
Stock Market 2025 Mid Decade Year - 15th Dec 24
Sheffield Christmas Market 2024 Is a Building Site - 15th Dec 24
Got Copper or Gold Miners? Watch Out - 15th Dec 24
Republican vs Democrat Presidents and the Stock Market - 13th Dec 24
Stock Market Up 8 Out of First 9 months - 13th Dec 24
What Does a Strong Sept Mean for the Stock Market? - 13th Dec 24
Is Trump the Most Pro-Stock Market President Ever? - 13th Dec 24
Interest Rates, Unemployment and the SPX - 13th Dec 24
Fed Balance Sheet Continues To Decline - 13th Dec 24
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

When Will This Financial Crisis End?

Stock-Markets / Credit Crisis 2010 Feb 04, 2010 - 07:49 AM GMT

By: DailyWealth

Stock-Markets

Best Financial Markets Analysis ArticleSteve Sjuggerud writes: We're out of the woods with this financial crisis...

That's my best guess at least, based on a study of the major financial crises through history.

The recent book This Time is Different: Eight Centuries of Financial Folly, by Kenneth Rogoff and Carmen Reinhart, takes a look at the history of major financial crises...

Boiling the book down to its simplest conclusions, here's what happens after a banking crisis:
  • Home prices and stock prices collapse dramatically over the course of several years.
  • The economy tanks and unemployment rises dramatically.
  • Government debts soar.

The book gives specific timelines based on history... It tells us how far things fall and how long these things last. And it gives us a pretty good idea of what to expect going forward.

Let's look at a few of their conclusions more specifically, starting with stocks...

Stock Prices

The authors found that real stock prices typically fall 56% over three and a half years, on average. In the current financial crisis, stocks already fell a bit more than that, in a much shorter period of time, bottoming in March 2009. Then they rallied dramatically.

Is the worst over in stocks? Or is another leg down coming?

I personally believe the worst is over.

At first, the crisis blindsided us, so the effect was dramatic. Now we're aware... more sober... So I think the lows we saw in March 2009 will be the ultimate lows for this crisis in stocks.

Home Prices

The authors found real home prices typically fall 35% over six years. This time around, home prices (like stocks) fell a bit more than the authors' average in a much shorter period of time.

Like stock prices, home prices have been recovering.

Is the worst over? Or did the recent home-buyer tax credit prop prices up?

I think the worst is over. I think we've seen the lows. But home prices may do basically nothing for many years.

Unemployment

According to the authors, unemployment typically rises by seven percentage points in a banking crisis... and unemployment stays "bad" for four years. So far, unemployment has risen by about five percentage points, and we're two years into this thing. So if the authors are right, unemployment could hit 12% and last two more years.

Government Debt

The authors state that government debt explodes by 86% above pre-crisis levels, on average. In the current crisis, quite frankly, I have no idea how much government debt has REALLY exploded. Nobody can know that answer... with all the creative things going on at the Federal Reserve and the Treasury Department.

So where does that leave us?

This crisis has been worse in magnitude than most, according to the authors' numbers. It's also been devastatingly quick.

The good news here is that we may already be out of the woods... Stock prices and home prices have been recovering for months. And unemployment has leveled off in the 10% range.

The bad news is the government's explosion in debts. But risks associated with that won't likely come home to roost in the next couple of years. That's a topic for another day.

In short, based on past crises, it's easy to make an optimistic case that the worst is behind us in the economy.

Good investing,

Steve

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2010 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in