Recessions & Crashes: Memories & Lessons

[kennynah]

I've done well since March 2009... A few of my accounts are up by triple digits in percentage terms.

so good....

[winston]

One of the greatest quotes ever about booms and busts...
By David Galland in Casey’s Daily Dispatch:

…to the extent that [the White House’s middle class initiatives] allow people to keep more of their hard-earned money, I salute them. But, of course, appeasing the middle class will require greater levels of deficit spending and an increase in taxes on companies or people that are above the $85,000 threshold.

Which is to say that this is just so much more politically motivated deck chair rearranging on the Titanic. Quoting one of my favorite economists of all times…

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” Ludwig von Mises

The system needs a reset, and it’s going to get one – no matter what the masters of the universe would like you to believe.

[winston]

Four worst bear markets offer sharp lesson by Howard Clark Burton

Those who bought assets after the "Great Crash" of 2008-09 should be better off than those who bought before.

One way to decide whether today's prices are a good opportunity is to compare recent pricing patterns with three previous bear market crashes - the Great Depression (1929 to 1932), the oil crisis (1973 to 1974) and the technology bust of 2000 to 2002.

In each there were periods when stock market prices rose by 10 to 20 percent, a phenomenon known as a bear market rally.

The MSCI World Index declined by more than 57 percent from its high on October 31, 2007, to the most recent low on March 9, 2009.

During this period there were four recoveries that exceeded 10 percent, and some over 20 percent. The table shows detail of four bear market rallies in the recent tumble.

Many investors are now wondering whether the most recent recovery constituted another bear market rally or the return of a bull market.

According to RMB, for a proper bull market recovery look for positive signs in seven areas - economic growth, earnings growth, credit extension, investor sentiment, asset valuations, government policy and actual market recovery.

Economic and earnings growth, and credit extension, have certainly not recovered or even stabilized to long term average levels.

Most Western economies are still hampered by rising unemployment, housing market problems, higher savings levels and decreased consumer spending.

The US earnings season will indicate how far earnings have declined and whether some kind of recovery is on the horizon, but credit expansion remains restricted. Investor sentiment seems to be nervously positive after sliding for most of the last two years.

RMB said "asset valuations are looking a lot more attractive now than at the beginning of 2009 with analysts classifying a wider range of assets as cheap.

The jury is out on the success of the global fiscal policy stimuli, and in spite of the magnitude of the most recent rally, equity markets are still some way below their 200-day moving averages."

According to RMB, this "is not to say that the current rally will be short lived. Even if it is a bear market rally it could continue for some time, as was the case from September 2001 to March 2002 during the bear market that followed the tech bubble." What does this mean to an investor?

If the ultimate aim is to maximize returns on a risk adjusted basis, keep within the ball-park figure of your risk appetite, be more aggressive when risk levels are lower and more conservative when volatility is higher, and maintain a medium term expectation for your investment returns.

* Howard Clark Burton is managing director at Financial Partners

http://www.thestandard.com.hk/news_deta ... 00201&fc=1

[winston]

Montier: Was it all just a bad dream? Or, ten lessons not learnt by Prieur du Plessis

James Montier, a member of GMO’s Asset Allocation Team, examines whether we learned anything from the market declines of 2008 and early 2009. In this paper - his first since joining GMO from Société Générale - he outlines ten of the lessons he believes not to have been learned.

Here is the opening paragraph:

“It appears as if the market declines of 2008 and early 2009 are being treated as nothing more than a bad dream, as if the investment industry has gone right back to business as usual. This extreme brevity of financial memory is breathtaking. Surely, we should attempt to look back and learn something from the mistakes that gave rise to the worst period in markets since the Great Depression. In an effort to engage in exactly this kind of learning experience, I have put together my list of the top ten lessons we seem to have failed to learn. So let’s dive in!”

And the ten lessons:

Lesson 1: Markets aren’t efficient.

Lesson 2: Relative performance is a dangerous game.

Lesson 3: The time is never different.

Lesson 4: Valuation matters.

Lesson 5: Wait for the fat pitch.

Lesson 6: Sentiment matters.

Lesson 7: Leverage can’t make a bad investment good, but it can make a good investment bad!

Lesson 8: Over-quantification hides real risk.

Lesson 9: Macro matters.

Lesson 10: Look for sources of cheap insurance.


Source: investmentpostcards.com

[winston]

Seth Klarman: The True And False Lessons From The Financial Crisis by Tyler Durden

Absolute must read for a new investing generation which really does think that this time it is different (and will not end in tears).

Pay special attention to the False Lessons, which blare at you daily as the one true gospel by the likes of CNBC.

http://www.zerohedge.com/article/must-r ... arket-inte

[winston]

TOL:-

One of the takeaways for me, from the Asian Financial Crisis as well as the recent Financial Tsunami, is that it will take a lot to bring down the financial system.

Human beings are very resilient creatures and they will always look for ways to address the issues on hand. If they have to bend some of the rules, they will do it...

As the world recovers from the economic slump, the Greece's problem is suddenly springing up on the horizon. And the "experts" with their sophisticated models are predicting end of the world scenarios again eg. Greece will need US$250b in 3 years, collapse of the other Club-Med countries, European banks will collapse, American banks will be hit etc..

Suddenly the most pessimistic scenario is presented as most probable scenario

If you want to panic then do it early. If not, then enjoy the ride. If you dont want to ride, then watch it from the sidelines.

It will take more than some Club-Med countries and the collapse of a few useless Investment Banks to bring down the financial system ..

[kennynah]

reference your above (this language reminds me of government service..hahaha )

W, would you then think it is wise to begin investing in financial ETFs?

[winston]

W, would you then think it is wise to begin investing in financial ETFs?

Hi K,

I really dont know. There are many headwinds eg. perceived European contagions, GS probe, new US Financial Institutions bill, new Commodity anti-speculation bill, NPLs from ARM resets, NPLs from Commercial Real Estate, Eastern European debts, Credit Card debts etc.

I think it will take many years for them to recover despite the trading profits that you saw last year.

Take care,
Winston

[winston]

TOL:-

Do you remember how Malaysia pegged their currency to the USD, when the currency speculators were shorting the Asian Tigers + Korea during the AFC ?

And what has that got to do with the current situation in Greece ?

It's to remind you that there's no need for governments to follow existing rules when they have to sort out a crisis.

So dont assume that things will be going in a certain direction as if the EU governments will have to follow the existing rules ..

It would not surprise me if Greece leaves the EU temporarily and have all their obligations backed by say G20 including China ..

[kennynah]

clap clap....give you points for being very imaginative...