Jan
01
Posted by kurtosisT
Yes I think it is safe to say and assume that for most they wish to forget the year of 2008. For most it was a financial disaster to say the least. In my 12 years of trading markets I can safely say that this was beyond anything I have ever seen. I was not alive in the 1930’s and the great depression but I am sure that I am living a piece of financial history that will be remembered and documented by generations to come of budding traders, fund managers, brokers, bankers, and even the mums and dads. For this reason I am going to write a score card of this year past.
First thing to note that US stock markets (S&P500, Dow Jones, NASDAQ 100) started the year on its highs and from there it was all downhill. Yes for the Year of 2008 here is the Equity Score card:
- S&P500 -37.6%
- DJIA -32.7%
- NASDAQ 100 -40.9%
Trivia question how many banks failed in the US in 2008? Answer 25. Fact from 2000 to 2007 according to FDIC only 27 banks in the US had failed and in 2008 alone 25 failed. Yes on 11 July 2008 the day that Indy Mac failed CNBC showed on TV two queues of people lined up waiting to get inside one was for those customers of Indy Mac Bank to get THEIR money out and the second was the queue to buy the new Apple iPhone 3G. To see for yourselves check this link: http://www.fdic.gov/bank/individual/failed/banklist.html
So let’s run the tape…
March 17 2008 saw Bear Sterns acquired by JPM but it would have folded if it had not been for Sunday March 16 crisis deal that the Federal Reserve struck with JPMorgan to acquire BSC for the sum of $2.00 a share or a mere USD 236million. The world financial markets would have imploded. The Fed had no idea what would follow but I think you can say that the US has imploded. JPMorgan later revised the bid up to $10.00 per share or USD 1.18bn.
September 8 2008 the federal government took over mortgage giants Fannie Mae and Freddie Mac. Nationalize the USA!
September 15 2008 saw Lehman Brothers 4th largest investment bank file for bankruptcy and on the same day Merrill Lynch was acquired by Bank of America for approx USD50bn. The mighty Merrill too would have folded if it wasn’t for the BAC rescue takeover! The Dow Jones Industrial Average ended more than 504 points lower on that Monday (you haven’t seen nothing yet), marking its biggest fall since the September 11.
In October we saw an even bigger spike in market volatility…1000pt moves were seen in one day! 5%- 10% swings a day where the norm for a period late in 2008…. VIX index started 2008 23.17 peak 89.53 on 24 October 2008 and closed the year at 40. The VIX has spent the past 3 months above that rule of thumb 30 equals capitulation. What’s that I ask in this market?
That same day Sept 15 AIG was also on the brink of collapse and the US Government gave them a bailout package over the rest of the year total Bailout equals USD127.7bn and counting. This was another case of too big to fail.
September 25 2008 JPM then acquires Washington Mutual Bank
You saw Wells Fargo acquire Wachovia to stop another bank failure
Congress was debating whether to approve the 700bn bailout plan that sent the markets tumbling during the first weeks in October.
Let’s talk about energy prices I think this was one of the craziest markets I had seen it started the year at an opening print of US$99.09 a barrel on the Light Sweet Crude Futures and then close the first day at $102.66 we then saw the market rally and peak in July where it had a high $152.74 (on a continuous contract) and then for the second half of the year it sold off aggressively to have a low $35.13 that’s a 77% decline from peak to trough in 2008. Crude for the year was down -56.6%. Wild, wild west stuff. Fortunes were made and then lost! Now OPEC is scrambling to get the price back up. This has and will impact those oil dependant countries like Russia, Venezuela, Iraq that were using the high oil price to get themselves out of economic woes.
2008 saw a US desperately trying to find alternative energy source! This then put huge pressure on an already failing Auto Industry when crude was at $150 per barrel Ford, GM, Chrysler were all having to rethink the business plan those gas guzzling SUV’s where a big problem…. GM to sell Hummer! This was the next obstacle to the markets a Failing Auto industry what would that do to UNEMPLOYMENT!! The Government is now faced with having to bailout this industry as well.
Unemployment was escalating at a staggering rate by the end the year it was 6.7%. Jobless claims ended the year with a 4 week moving average of approx 550,000. Continuing claims remain near a 26 year high and the feeling is that nonfarm payrolls will continue to show large losses in the months to come.
2008 saw large scale home foreclosures.
All this talk on the TARP Treasury package
TARP to bailout Citi without it Citi would also fold!
SEC in the end had to put a ban on short selling because it was leading to a lot of speculation as to who would be the next to fail
Helicopter Fed has now lowered interest rates from 4.25% at the beginning of 2008 to ZERO % by the end of 2008. Don’t forget to turn those printing presses on… as the Fed now starts to print money in a desperate attempt to re inflation the US Economy. Next bubble forming US T-Bills.
2008 was a year of two faces the first half saw a big commodities bubble form and the second half saw it burst….as all these hedge funds were running to those crowded trades:
SHORT: USD, FINANCIALS, PROPERTY, US HOUSING
LONG: WHEAT, CORN, SOYABEANS, ROUGH RICE, OIL, GOLD, EUR, AUD, CAD, AUDJPY, NZD, COMMODITY STOCKS, RESOURCE STOCKS, CHINA, INDIA.
Second half of 2008 saw large hedge fund liquidation to meet redemptions as investors started to panic with the financial system imploding
Finally, we heard that “R” word on December 1 2008 the US was officially in a recession I challenge that I think it could be depression 2… I like to call it D2.
Then after all that the long process of working through the Madoff Ponzi scheme. This is a tragedy for all those that were invested with him. People’s lives destroyed, Charities stung, European banks broken, only the beginning to unraveling this puzzle.
I am exhausted from just thinking about all that we have been through in 2008 so good luck for 2009 and I hope it’s a better one. But to be honest I am not going to hold my breath for that. Remember BUY AND HOLD IS DEAD! Trade and stick to stops and wait for trends to develop don’t be a hero and stand in front a moving train. Preserve capital that is left.
Good Luck to you all.
Kurtosis Trading.
