When did the bad news start in 2008?

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masteraleph
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Re: When did the bad news start in 2008?

Post by masteraleph » Tue Jan 30, 2018 9:31 am

I just want to expand on something chw noted above-

If you read or watch "The Big Short," one of the most interesting things is not only how some people identified the coming meltdown, but also how the few people who did identify it coming were almost wiped out by how long the meltdown took to come. If you're Michael Burry, for example, your hedge fund is almost wiped out as you short housing month after month waiting for the housing crash. He won out- Scion grew nearly 500% from 2000 to early 2008- but if things had held off another few months, he would have lost, despite being right. The same is true for the other people who figured out what was going on early on.

OP isn't talking about shorting the market, but it's worth mentioning that all of the 200-day and 7 month discussion above this post is referring to a strategy that follows the market. Around here, that's usually condemned ("you'll sell low and buy high!"), but making the switch early may be even worse.

deltaneutral83
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Re: When did the bad news start in 2008?

Post by deltaneutral83 » Tue Jan 30, 2018 9:51 am

masteraleph wrote:
Tue Jan 30, 2018 9:31 am
He won out- Scion grew nearly 500% from 2000 to early 2008- but if things had held off another few months, he would have lost, despite being right. The same is true for the other people who figured out what was going on early on.
The age old axiom that more money is lost trying to avoid the bear market than in the bear market itself holds true today just as it has in the past. Being right about direction is only half the battle, the other half is knowing when to hold em and when to fold em. I have the inclination for neither. The market can definitely ignore good news or bad news for periods of years, or stay irrational longer than you can stay solvent as the saying goes. The only people that can truly execute are the insiders which is illegal, like the group who bought well out of the money puts on Lehman about 6 minutes after the meeting of the minds adjourned with all the top bankers and Bernanke followed by the Lehman crash within 3 weeks.

miamivice
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Re: When did the bad news start in 2008?

Post by miamivice » Tue Jan 30, 2018 9:56 am

sharkiez wrote:
Fri Jan 26, 2018 4:13 pm
Hello All,

Long-time lurker here and have been learning a lot from everyone in this forum, so thank you. I got into investing in Q3 last year with a simple 80/20 stocks/bonds portfolio and have been extremely happy with the returns so far in this extremely bullish market. I understand that the long-term philosophy is to stay the course, even in bear markets, but the stock market took almost 5 years to recover to 2008 levels when it crashed the last time. I was wondering, for those who went through that experience, surely there was some writing on the wall that suggested an imminent crash was incoming? When did the negative news start circulating? Even if we ignored all that, after the big dip on Sep 29, 2008, if people would have sold then and bought in again a year or two later, wouldn't they have stood a chance to make more than if they "stayed the course"? In hindsight, even those who stayed the course are doing well with the recent bull run, but I am just wondering the "what ifs".

Not trying to time the market here. When it's crashing, why not sell off in the early stage (before reaching the bottom), knowing it will eventually reach the bottom (you don't even need to time the bottom) and recover? You already have long-term gains and you can lock in those gains.
The bad news started in 2007, not 2008.August 22nd, 2007 to be precise. I got an e-mail from a relative who worked in the mortgage industry. The financial markets for jumbo loans locked up this day and they couldn't write loans when they could the day before. We didn't know how bad things were going to get, but that was the first sign.

Valuethinker
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Re: When did the bad news start in 2008?

Post by Valuethinker » Tue Jan 30, 2018 10:20 am

deltaneutral83 wrote:
Tue Jan 30, 2018 9:51 am
masteraleph wrote:
Tue Jan 30, 2018 9:31 am
He won out- Scion grew nearly 500% from 2000 to early 2008- but if things had held off another few months, he would have lost, despite being right. The same is true for the other people who figured out what was going on early on.
The age old axiom that more money is lost trying to avoid the bear market than in the bear market itself holds true today just as it has in the past. Being right about direction is only half the battle, the other half is knowing when to hold em and when to fold em. I have the inclination for neither. The market can definitely ignore good news or bad news for periods of years, or stay irrational longer than you can stay solvent as the saying goes. The only people that can truly execute are the insiders which is illegal, like the group who bought well out of the money puts on Lehman about 6 minutes after the meeting of the minds adjourned with all the top bankers and Bernanke followed by the Lehman crash within 3 weeks.
Do tell.

Who was that then? Who exploited the inside information? I've not read that before anywhere.

Valuethinker
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Re: When did the bad news start in 2008?

Post by Valuethinker » Tue Jan 30, 2018 10:20 am

miamivice wrote:
Tue Jan 30, 2018 9:56 am
sharkiez wrote:
Fri Jan 26, 2018 4:13 pm
Hello All,

Long-time lurker here and have been learning a lot from everyone in this forum, so thank you. I got into investing in Q3 last year with a simple 80/20 stocks/bonds portfolio and have been extremely happy with the returns so far in this extremely bullish market. I understand that the long-term philosophy is to stay the course, even in bear markets, but the stock market took almost 5 years to recover to 2008 levels when it crashed the last time. I was wondering, for those who went through that experience, surely there was some writing on the wall that suggested an imminent crash was incoming? When did the negative news start circulating? Even if we ignored all that, after the big dip on Sep 29, 2008, if people would have sold then and bought in again a year or two later, wouldn't they have stood a chance to make more than if they "stayed the course"? In hindsight, even those who stayed the course are doing well with the recent bull run, but I am just wondering the "what ifs".

Not trying to time the market here. When it's crashing, why not sell off in the early stage (before reaching the bottom), knowing it will eventually reach the bottom (you don't even need to time the bottom) and recover? You already have long-term gains and you can lock in those gains.

The bad news started in 2007, not 2008.August 22nd, 2007 to be precise. I got an e-mail from a relative who worked in the mortgage industry. The financial markets for jumbo loans locked up this day and they couldn't write loans when they could the day before. We didn't know how bad things were going to get, but that was the first sign.
The Paribas fund valuation announcement was in early August, so the markets were already aware there was a problem. Interesting to see how fast it filtered down to the street level.

deltaneutral83
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Re: When did the bad news start in 2008?

Post by deltaneutral83 » Tue Jan 30, 2018 10:44 am

Valuethinker wrote:
Tue Jan 30, 2018 10:20 am
Do tell.

Who was that then? Who exploited the inside information? I've not read that before anywhere.
I think it may have been in one of Michael Lewis books, or maybe the biography of Jaime Dimon, can't remember. There was a meeting of the minds on Lehman and Dick Fuld in 2008 along with all the top bankers/Bernanke which I believe was the substance to go ahead and let Lehman fall. To my memory, it was trading around $65 and puts were bought at $30ish for next to nothing with a very short time until expiration. The company went under in that short time frame if I recall correctly and the puts cashed in.

Valuethinker
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Re: When did the bad news start in 2008?

Post by Valuethinker » Tue Jan 30, 2018 11:23 am

deltaneutral83 wrote:
Tue Jan 30, 2018 10:44 am
Valuethinker wrote:
Tue Jan 30, 2018 10:20 am
Do tell.

Who was that then? Who exploited the inside information? I've not read that before anywhere.
I think it may have been in one of Michael Lewis books, or maybe the biography of Jaime Dimon, can't remember. There was a meeting of the minds on Lehman and Dick Fuld in 2008 along with all the top bankers/Bernanke which I believe was the substance to go ahead and let Lehman fall. To my memory, it was trading around $65 and puts were bought at $30ish for next to nothing with a very short time until expiration. The company went under in that short time frame if I recall correctly and the puts cashed in.
I know a US Congressman did do, when that was not illegal. I believe the laws have been tightened up significantly on that- -US Congressmen were essentially exempt from insider trading laws, and an academic study showed their stock picking was much superior to that of investors generally.

deltaneutral83
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Re: When did the bad news start in 2008?

Post by deltaneutral83 » Tue Jan 30, 2018 11:27 am

Valuethinker wrote:
Tue Jan 30, 2018 11:23 am
I know a US Congressman did do, when that was not illegal. I believe the laws have been tightened up significantly on that- -US Congressmen were essentially exempt from insider trading laws, and an academic study showed their stock picking was much superior to that of investors generally.
While I am aware that congressmen do this every day, I had no idea it was legal. I was aware they could get in and cash in on some IPOs that common folk have no chance at, but had no idea insider information for them was ever legal, wow.

alfaspider
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Re: When did the bad news start in 2008?

Post by alfaspider » Tue Jan 30, 2018 11:39 am

miamivice wrote:
Tue Jan 30, 2018 9:56 am
sharkiez wrote:
Fri Jan 26, 2018 4:13 pm
Hello All,

Long-time lurker here and have been learning a lot from everyone in this forum, so thank you. I got into investing in Q3 last year with a simple 80/20 stocks/bonds portfolio and have been extremely happy with the returns so far in this extremely bullish market. I understand that the long-term philosophy is to stay the course, even in bear markets, but the stock market took almost 5 years to recover to 2008 levels when it crashed the last time. I was wondering, for those who went through that experience, surely there was some writing on the wall that suggested an imminent crash was incoming? When did the negative news start circulating? Even if we ignored all that, after the big dip on Sep 29, 2008, if people would have sold then and bought in again a year or two later, wouldn't they have stood a chance to make more than if they "stayed the course"? In hindsight, even those who stayed the course are doing well with the recent bull run, but I am just wondering the "what ifs".

Not trying to time the market here. When it's crashing, why not sell off in the early stage (before reaching the bottom), knowing it will eventually reach the bottom (you don't even need to time the bottom) and recover? You already have long-term gains and you can lock in those gains.
The bad news started in 2007, not 2008.August 22nd, 2007 to be precise. I got an e-mail from a relative who worked in the mortgage industry. The financial markets for jumbo loans locked up this day and they couldn't write loans when they could the day before. We didn't know how bad things were going to get, but that was the first sign.
There were reports of serious problems well before August. The term "subprime crisis" was already in the news in the spring of 2007:

https://www.npr.org/templates/story/sto ... Id=9085408

The article even notes fear that subprime defaults could impact the overall banking system. It's just that people really didn't have a sense for how bad it was going to get for a little over a year.

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3CT_Paddler
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Re: When did the bad news start in 2008?

Post by 3CT_Paddler » Tue Jan 30, 2018 12:52 pm

The tough question was not necessarily when to get out, but when to get back in.

Three years after the Great Recession (2011) the common used phrase was The New Normal... as in sluggish growth and high unemployment with low returns are the new normal for the foreseeable future. The general consensus among economists was we may never see sub 6% unemployment for another 20 years. People thought we were about to slip back into a major recession, the job market was still terrible for many sectors (anything construction related). Also the Eurozone looked like it might collapse - which was bringing up murmers of contagion in the US. Nobody was calling for the kinds of great returns we have seen over the last seven years. There are people who were still waiting to dip their toes back in seven or eight years later when we were in the middle of a mature bull market. At that point you missed out on some of the greatest growth.

And the next recession might be far different than the next one. It could be a 70s type of recession where growth goes nowhere for 10-15 years.

Be prepared to watch your money invested now go to 50% or lower from its current value.

Don't pay attention to your balance, and trust the process. It's about disciplined saving over time.

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Re: When did the bad news start in 2008?

Post by Fallible » Tue Jan 30, 2018 3:08 pm

[
alfaspider wrote:
Tue Jan 30, 2018 11:39 am
...
There were reports of serious problems well before August. The term "subprime crisis" was already in the news in the spring of 2007: https://www.npr.org/templates/story/sto ... Id=9085408

The article even notes fear that subprime defaults could impact the overall banking system. It's just that people really didn't have a sense for how bad it was going to get for a little over a year.
Yes, it was hard for just about everyone to sense (or admit) how bad it was getting even though problems were being reported much earlier. Housing peaked in 2005 before beginning to fall in 2006 (we later learned) and there were news reports of serious problems in mid-2005 when Alan Greenspan referred to only "froth" in regional housing. I remember well this NYT article on his comments and on the growing signs of greater dangers:
Many analysts have argued for months that evidence of speculative activity has increased over the last year. Much of the evidence is anecdotal, including people buying and reselling houses at developments before construction is even completed.

But there has been solid data as well pointing to rapid price increases in second-home markets, reports of many more individuals buying houses and condominiums as investments rather than as places to live, and to the heavy use of interest-only loans and adjustable-rate mortgages that allow purchasers to buy considerably more expensive properties than would otherwise be possible.
http://www.nytimes.com/2005/05/21/busin ... using.html
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CulchaCity
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Re: When did the bad news start in 2008?

Post by CulchaCity » Tue Jan 30, 2018 3:11 pm

willthrill81 wrote:
Sun Jan 28, 2018 11:44 pm
thangngo wrote:
Sun Jan 28, 2018 11:37 pm
Did you use this market timing strategy back in 2007? Can you share the your process?
I had very little in the market back then because I was a broke grad student at the time. :mrgreen:

The strategy is very simple. When the TSM is above its 200 day moving average, which is close to the 10 month moving average (I personally prefer the 7 month moving average, but over the long-term, the results are very likely to be highly similar), you hold it. Otherwise, you move into TBM. No watching CNBC, and you can just trade once per month. It takes literally seconds to do it with free software available at sites like Portfolio Visualizer.
Why do you prefer the 7 month moving average if most of the data use 10 month?
Thanks

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willthrill81
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Re: When did the bad news start in 2008?

Post by willthrill81 » Tue Jan 30, 2018 3:34 pm

CulchaCity wrote:
Tue Jan 30, 2018 3:11 pm
willthrill81 wrote:
Sun Jan 28, 2018 11:44 pm
thangngo wrote:
Sun Jan 28, 2018 11:37 pm
Did you use this market timing strategy back in 2007? Can you share the your process?
I had very little in the market back then because I was a broke grad student at the time. :mrgreen:

The strategy is very simple. When the TSM is above its 200 day moving average, which is close to the 10 month moving average (I personally prefer the 7 month moving average, but over the long-term, the results are very likely to be highly similar), you hold it. Otherwise, you move into TBM. No watching CNBC, and you can just trade once per month. It takes literally seconds to do it with free software available at sites like Portfolio Visualizer.
Why do you prefer the 7 month moving average if most of the data use 10 month?
Thanks
Logically and historically, shorter-time frames tend to respond more quickly to changing trends in the marketplace. If nothing else, this helps me feel more at ease since it's less likely that we'll be well into a bad bear market before I'm out. But over the long-term, the returns and drawdowns of this strategy, using everything from 2 month to 36 month moving averages, have been surprisingly similar. Shorter timing periods react more quickly to trends, but they also 'whipsaw' you (buy high and sell low) more than longer timing periods; this seems to largely balance out over the long-term. Also, longer timing periods result in fewer trades. A 12 month moving average would have resulted in only 23 trades made since 1994, fewer than one per year. By comparison, a 7 month moving average would have resulted in 43 trades, while a 24 month moving average would have yielded just 13 trades. But I have no trading costs or tax implications in my tax deferred accounts, so that's not a concern for me.

There's certainly nothing special about the 200 day (~10 month) moving average. It's just the most widely publicized and studied signal.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Not Law
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Re: When did the bad news start in 2008?

Post by Not Law » Tue Jan 30, 2018 3:58 pm

The bad news was available in 2007. When I became aware of a couple receiving public assistance who had purchased a $130,000 home with 80/20 financing. They assumed since they had been approved for the loan they would be able to afford the payments - otherwise the lender would not have loaned the money. Made me realize the total house of cards the home finance business had become.

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Re: When did the bad news start in 2008?

Post by MichaelRpdx » Tue Jan 30, 2018 4:04 pm

willthrill81 wrote:
Tue Jan 30, 2018 3:34 pm
There's certainly nothing special about the 200 day (~10 month) moving average. It's just the most widely publicized and studied signal.
Huh? 200 days is just under seven months. 10 months would be just over 300 days
Be Appropriate && Follow Your Curiosity

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willthrill81
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Re: When did the bad news start in 2008?

Post by willthrill81 » Tue Jan 30, 2018 4:40 pm

MichaelRpdx wrote:
Tue Jan 30, 2018 4:04 pm
willthrill81 wrote:
Tue Jan 30, 2018 3:34 pm
There's certainly nothing special about the 200 day (~10 month) moving average. It's just the most widely publicized and studied signal.
Huh? 200 days is just under seven months. 10 months would be just over 300 days
Trading days do not equal calendar days. There are approximately 21 trading days per month.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

chicagoan23
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Re: When did the bad news start in 2008?

Post by chicagoan23 » Tue Jan 30, 2018 6:35 pm

sharkiez wrote:
Fri Jan 26, 2018 4:13 pm
Hello All,

Long-time lurker here and have been learning a lot from everyone in this forum, so thank you. I got into investing in Q3 last year with a simple 80/20 stocks/bonds portfolio and have been extremely happy with the returns so far in this extremely bullish market. I understand that the long-term philosophy is to stay the course, even in bear markets, but the stock market took almost 5 years to recover to 2008 levels when it crashed the last time. I was wondering, for those who went through that experience, surely there was some writing on the wall that suggested an imminent crash was incoming? When did the negative news start circulating? Even if we ignored all that, after the big dip on Sep 29, 2008, if people would have sold then and bought in again a year or two later, wouldn't they have stood a chance to make more than if they "stayed the course"? In hindsight, even those who stayed the course are doing well with the recent bull run, but I am just wondering the "what ifs".

Not trying to time the market here. When it's crashing, why not sell off in the early stage (before reaching the bottom), knowing it will eventually reach the bottom (you don't even need to time the bottom) and recover? You already have long-term gains and you can lock in those gains.
Bear Stearns failing was a sign that things were definitely off. I remember it well at the time. I saw the announcement on the Sunday evening news. The stock went from $50/share to $2/share in two days. When you see big financial companies experiencing those types of wipe-outs, then you make note of it.

At the time I didn't act. For all the commentary stating that Bear Stearns was a signal of a broken market, there was just as much commentary stating that Bear Stearns was a unique situation, the problem was contained, that cleared the market, etc. For example, see: this piece from March 2008:
We’ve been through dozens of false bottoms, but this time, with the Fed and Treasury basically saying they will do anything it takes to save the system, you finally have a floor that can hold the weight of America’s savings. Mind you, I don’t think we’ll have a meaningful rally up from the current levels until we’re closer to the election (the uncertainty of an election almost always means we go nowhere). But now, at least, I feel the bear has been tamed, and the worst of the clawing is over.
Oh, Cramer.

Or see this piece for an example of how some commentators thought that the Fed's intervention saved the day, and they would do anything to ensure that we wouldn't have a collapse.
Doing nothing might have cost a lot more. The Fed could have let Bear Stearns careen into bankruptcy, which would have meant that the firm's lenders and other creditors would have received pennies on the dollar....The overall effect on an economy that's already teetering could have been dramatic. "Without a deal, take everything we've seen so far and multiply it by 10," says Lerner. "If there were a real panic and GDP shrunk by 5 percent, there'd be an immediate real cost to the government in terms of tax revenues—and to all of our prosperity."
The "false bottom" concept is very real. On the way down, you always think, "OK, that was terrible, but it's not going to get much worse than this. The problem has been exposed, the pain has been felt, and we're on our way to recovery." You feel that way after a 10% drop, a 20% drop, a 30% drop, and especially after a 40% or 50% drop. How much worse can it get? The more it keeps getting worse, the less you want to sell and lock in the losses. So you hang on.....unless you just can't take it anymore. There's a reason it's called "capitulating," after all.

I didn't sell, and I made my regular 401(k) contributions at my regular allocation with an emergency fund that at the time was about 25% of my total portfolio because I had just bought a house and had a big mortgage. That was good. I remember saying to myself that if we ever got to 5,000 on the Dow, then I would put every cent I owned into stocks, including the emergency fund. We didn't quite get there.

The market was up 43% from the bottom in March 6, 2009 to June 11, 2009. 43% in three months!! Had you sold out earlier, would you have bought in March 2009? What makes you think so?

If you had the tremendous foresight to have sold when Bear Stearns happened, but waited to get back in until November 2009--six months post-bottom--you made about 12% on the round trip. In December 2009, GDP was still shrinking and we were still actually in the Great Recession, and unemployment was over 10%. It was not at all clear that we were home free, so you made a gutsy call. There's no guarantee that you would be able to make the right call again.

Lesson I Learned: Timing the market is impossible, yes, but that doesn't mean your asset allocation has to be static. With the recent bull market, over the past four months I have gradually changed my asset allocation and am now about 65/35, with the 35% including bonds and cash. Previously I was closer to 85/15. In my written Investment Policy Statement I have decided that I don't really need to take more risk than that to reach my financial goals, unless we experience a true bear market. If we do, then I do need to take more risk, and I believe I will be willing and able to do so. Therefore, if there is a 20% decline I will move to 75/25, if there is a 30% decline I will move to 85/15, and if there is a 40% decline I will move to 95/5. I am 100% confident that I will stick to that.

runner540
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Re: When did the bad news start in 2008?

Post by runner540 » Tue Jan 30, 2018 10:53 pm

deltaneutral83 wrote:
Tue Jan 30, 2018 11:27 am
Valuethinker wrote:
Tue Jan 30, 2018 11:23 am
I know a US Congressman did do, when that was not illegal. I believe the laws have been tightened up significantly on that- -US Congressmen were essentially exempt from insider trading laws, and an academic study showed their stock picking was much superior to that of investors generally.
While I am aware that congressmen do this every day, I had no idea it was legal. I was aware they could get in and cash in on some IPOs that common folk have no chance at, but had no idea insider information for them was ever legal, wow.
I believe the WSJ led the investigative reporting of this issue, pointing out that most in the private sector were begin held to much higher standards than public officials.

Valuethinker
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Re: When did the bad news start in 2008?

Post by Valuethinker » Wed Jan 31, 2018 5:39 am

deltaneutral83 wrote:
Tue Jan 30, 2018 11:27 am
Valuethinker wrote:
Tue Jan 30, 2018 11:23 am
I know a US Congressman did do, when that was not illegal. I believe the laws have been tightened up significantly on that- -US Congressmen were essentially exempt from insider trading laws, and an academic study showed their stock picking was much superior to that of investors generally.
While I am aware that congressmen do this every day, I had no idea it was legal. I was aware they could get in and cash in on some IPOs that common folk have no chance at, but had no idea insider information for them was ever legal, wow.
There was a discussion here (poster richard from memory).

Insider Trading in US law falls out of a failure of fiduciary duty to shareholders-- company directors, executives, employees, advisers to the company like lawyers and bankers.

That didn't cover US Congressmen.

GratefulinNC
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Re: When did the bad news start in 2008?

Post by GratefulinNC » Wed Jan 31, 2018 5:51 am

The mid-2000s were a boom times. Stocks were rising at an incredible pace.

The first indication I had of the coming stock market crash was on November 13, 2007, when Harry Newton issied a strong warning to get out of the market in his web blog, In Search of the Perfect Investment. You can read that post right here: http://www.technologyinvestor.com/login ... v13-07.php.

If I had listened to him I could have prevented a 56% portfolio loss.

I recommend Harry's blog not so much for investing advice, but for life advice. Check it out at http://www.technologyinvestor.com.

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Re: When did the bad news start in 2008?

Post by bayview » Wed Jan 31, 2018 7:12 am

sharkiez wrote:
Fri Jan 26, 2018 4:13 pm
Hello All,

Long-time lurker here and have been learning a lot from everyone in this forum, so thank you. I got into investing in Q3 last year with a simple 80/20 stocks/bonds portfolio and have been extremely happy with the returns so far in this extremely bullish market. I understand that the long-term philosophy is to stay the course, even in bear markets, but the stock market took almost 5 years to recover to 2008 levels when it crashed the last time. I was wondering, for those who went through that experience, surely there was some writing on the wall that suggested an imminent crash was incoming? When did the negative news start circulating? Even if we ignored all that, after the big dip on Sep 29, 2008, if people would have sold then and bought in again a year or two later, wouldn't they have stood a chance to make more than if they "stayed the course"? In hindsight, even those who stayed the course are doing well with the recent bull run, but I am just wondering the "what ifs".

Not trying to time the market here. When it's crashing, why not sell off in the early stage (before reaching the bottom), knowing it will eventually reach the bottom (you don't even need to time the bottom) and recover? You already have long-term gains and you can lock in those gains.
This is your gut telling you that you're not really comfortable with an 80/20 allocation. Dial it back to 70/30 or 60/40 or even less if you have to, but find a spot where if the stock portion of your AA drops 50% for a while, you won't be completely freaked.

"Bulls get fat, bears get fat, pigs get slaughtered."
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

GratefulinNC
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Re: When did the bad news start in 2008?

Post by GratefulinNC » Wed Jan 31, 2018 7:27 am

chicagoan23 wrote:
Tue Jan 30, 2018 6:35 pm
sharkiez wrote:
Fri Jan 26, 2018 4:13 pm
Hello All,

Long-time lurker here and have been learning a lot from everyone in this forum, so thank you. I got into investing in Q3 last year with a simple 80/20 stocks/bonds portfolio and have been extremely happy with the returns so far in this extremely bullish market. I understand that the long-term philosophy is to stay the course, even in bear markets, but the stock market took almost 5 years to recover to 2008 levels when it crashed the last time. I was wondering, for those who went through that experience, surely there was some writing on the wall that suggested an imminent crash was incoming? When did the negative news start circulating? Even if we ignored all that, after the big dip on Sep 29, 2008, if people would have sold then and bought in again a year or two later, wouldn't they have stood a chance to make more than if they "stayed the course"? In hindsight, even those who stayed the course are doing well with the recent bull run, but I am just wondering the "what ifs".

Not trying to time the market here. When it's crashing, why not sell off in the early stage (before reaching the bottom), knowing it will eventually reach the bottom (you don't even need to time the bottom) and recover? You already have long-term gains and you can lock in those gains.
Bear Stearns failing was a sign that things were definitely off. I remember it well at the time. I saw the announcement on the Sunday evening news. The stock went from $50/share to $2/share in two days. When you see big financial companies experiencing those types of wipe-outs, then you make note of it.

At the time I didn't act. For all the commentary stating that Bear Stearns was a signal of a broken market, there was just as much commentary stating that Bear Stearns was a unique situation, the problem was contained, that cleared the market, etc. For example, see: this piece from March 2008:
We’ve been through dozens of false bottoms, but this time, with the Fed and Treasury basically saying they will do anything it takes to save the system, you finally have a floor that can hold the weight of America’s savings. Mind you, I don’t think we’ll have a meaningful rally up from the current levels until we’re closer to the election (the uncertainty of an election almost always means we go nowhere). But now, at least, I feel the bear has been tamed, and the worst of the clawing is over.
Oh, Cramer.

Or see this piece for an example of how some commentators thought that the Fed's intervention saved the day, and they would do anything to ensure that we wouldn't have a collapse.
Doing nothing might have cost a lot more. The Fed could have let Bear Stearns careen into bankruptcy, which would have meant that the firm's lenders and other creditors would have received pennies on the dollar....The overall effect on an economy that's already teetering could have been dramatic. "Without a deal, take everything we've seen so far and multiply it by 10," says Lerner. "If there were a real panic and GDP shrunk by 5 percent, there'd be an immediate real cost to the government in terms of tax revenues—and to all of our prosperity."
The "false bottom" concept is very real. On the way down, you always think, "OK, that was terrible, but it's not going to get much worse than this. The problem has been exposed, the pain has been felt, and we're on our way to recovery." You feel that way after a 10% drop, a 20% drop, a 30% drop, and especially after a 40% or 50% drop. How much worse can it get? The more it keeps getting worse, the less you want to sell and lock in the losses. So you hang on.....unless you just can't take it anymore. There's a reason it's called "capitulating," after all.

I didn't sell, and I made my regular 401(k) contributions at my regular allocation with an emergency fund that at the time was about 25% of my total portfolio because I had just bought a house and had a big mortgage. That was good. I remember saying to myself that if we ever got to 5,000 on the Dow, then I would put every cent I owned into stocks, including the emergency fund. We didn't quite get there.

The market was up 43% from the bottom in March 6, 2009 to June 11, 2009. 43% in three months!! Had you sold out earlier, would you have bought in March 2009? What makes you think so?

If you had the tremendous foresight to have sold when Bear Stearns happened, but waited to get back in until November 2009--six months post-bottom--you made about 12% on the round trip. In December 2009, GDP was still shrinking and we were still actually in the Great Recession, and unemployment was over 10%. It was not at all clear that we were home free, so you made a gutsy call. There's no guarantee that you would be able to make the right call again.

Lesson I Learned: Timing the market is impossible, yes, but that doesn't mean your asset allocation has to be static. With the recent bull market, over the past four months I have gradually changed my asset allocation and am now about 65/35, with the 35% including bonds and cash. Previously I was closer to 85/15. In my written Investment Policy Statement I have decided that I don't really need to take more risk than that to reach my financial goals, unless we experience a true bear market. If we do, then I do need to take more risk, and I believe I will be willing and able to do so. Therefore, if there is a 20% decline I will move to 75/25, if there is a 30% decline I will move to 85/15, and if there is a 40% decline I will move to 95/5. I am 100% confident that I will stick to that.
Chicagoan23, you are my hero. This is the best post! Thank you for sharing

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jharkin
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Re: When did the bad news start in 2008?

Post by jharkin » Wed Jan 31, 2018 8:55 am

I remember seeing bits and pieces, but until that horrible day in October when everything fell apart the most i knew was the news about housing softening. I was only 30 something at the time and still renting with my wife (we had just married) and we where wondering about when would be a good time to buy a house but lamenting it was impossible due to the insane bidding wars.

That turned out to be fortuitous, by the time we had the cash for a down payment the market had cratered and there where new buying tax incentives, etc.

But that was nothing but pure dumb luck.

As far as the market, at that time the only thing I had was my 401k and a small Roth, which was lucky because there are only so many options inside the 401 and dumping to cash wasn't one. I think I did panic over the winter of 08-09 and pull a lot out of stock funds and into bond funds, but I could not bail completely and I left my salary contribution as is. And bond funds crashed badly too so that was no haven. At that stage in life my contributions where more than market gains most years anyway so it softened the blow. I think I went form a high point in the spring of 08, to a low of about a 20% overall account decline (with new deferrals offsetting market value losses).


And since 09 our retirement accounts have grown 5x between gains and new contributions.

In the previous crash (99) I was just starting my career and more worried about the layoffs in tech than what the market was doing. I had just started investing the year that crash happened. Again dumb luck that I basically got my start at the beginning of a bull market. If only I had made enough money to put some real money in my 401 in the years from then up to 08... and had index options back then... but oh well....


Now, if I where in the position I am in today at those times, where market gains outpace new money and stood to loose a lot more might I do something different? Maybe. But one thing I took away from those years is that I keep my AA more conservative that others here do (closer to age in bonds than the 90/10 some suggest) and since 08 I learned about bogleheads so I am sticking to my IPS and staying the course.

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Re: When did the bad news start in 2008?

Post by chicagoan23 » Wed Jan 31, 2018 12:28 pm

GratefulinNC wrote:
Wed Jan 31, 2018 7:27 am
chicagoan23 wrote:
Tue Jan 30, 2018 6:35 pm
sharkiez wrote:
Fri Jan 26, 2018 4:13 pm
Hello All,

Long-time lurker here and have been learning a lot from everyone in this forum, so thank you. I got into investing in Q3 last year with a simple 80/20 stocks/bonds portfolio and have been extremely happy with the returns so far in this extremely bullish market. I understand that the long-term philosophy is to stay the course, even in bear markets, but the stock market took almost 5 years to recover to 2008 levels when it crashed the last time. I was wondering, for those who went through that experience, surely there was some writing on the wall that suggested an imminent crash was incoming? When did the negative news start circulating? Even if we ignored all that, after the big dip on Sep 29, 2008, if people would have sold then and bought in again a year or two later, wouldn't they have stood a chance to make more than if they "stayed the course"? In hindsight, even those who stayed the course are doing well with the recent bull run, but I am just wondering the "what ifs".

Not trying to time the market here. When it's crashing, why not sell off in the early stage (before reaching the bottom), knowing it will eventually reach the bottom (you don't even need to time the bottom) and recover? You already have long-term gains and you can lock in those gains.
Bear Stearns failing was a sign that things were definitely off. I remember it well at the time. I saw the announcement on the Sunday evening news. The stock went from $50/share to $2/share in two days. When you see big financial companies experiencing those types of wipe-outs, then you make note of it.

At the time I didn't act. For all the commentary stating that Bear Stearns was a signal of a broken market, there was just as much commentary stating that Bear Stearns was a unique situation, the problem was contained, that cleared the market, etc. For example, see: this piece from March 2008:
We’ve been through dozens of false bottoms, but this time, with the Fed and Treasury basically saying they will do anything it takes to save the system, you finally have a floor that can hold the weight of America’s savings. Mind you, I don’t think we’ll have a meaningful rally up from the current levels until we’re closer to the election (the uncertainty of an election almost always means we go nowhere). But now, at least, I feel the bear has been tamed, and the worst of the clawing is over.
Oh, Cramer.

Or see this piece for an example of how some commentators thought that the Fed's intervention saved the day, and they would do anything to ensure that we wouldn't have a collapse.
Doing nothing might have cost a lot more. The Fed could have let Bear Stearns careen into bankruptcy, which would have meant that the firm's lenders and other creditors would have received pennies on the dollar....The overall effect on an economy that's already teetering could have been dramatic. "Without a deal, take everything we've seen so far and multiply it by 10," says Lerner. "If there were a real panic and GDP shrunk by 5 percent, there'd be an immediate real cost to the government in terms of tax revenues—and to all of our prosperity."
The "false bottom" concept is very real. On the way down, you always think, "OK, that was terrible, but it's not going to get much worse than this. The problem has been exposed, the pain has been felt, and we're on our way to recovery." You feel that way after a 10% drop, a 20% drop, a 30% drop, and especially after a 40% or 50% drop. How much worse can it get? The more it keeps getting worse, the less you want to sell and lock in the losses. So you hang on.....unless you just can't take it anymore. There's a reason it's called "capitulating," after all.

I didn't sell, and I made my regular 401(k) contributions at my regular allocation with an emergency fund that at the time was about 25% of my total portfolio because I had just bought a house and had a big mortgage. That was good. I remember saying to myself that if we ever got to 5,000 on the Dow, then I would put every cent I owned into stocks, including the emergency fund. We didn't quite get there.

The market was up 43% from the bottom in March 6, 2009 to June 11, 2009. 43% in three months!! Had you sold out earlier, would you have bought in March 2009? What makes you think so?

If you had the tremendous foresight to have sold when Bear Stearns happened, but waited to get back in until November 2009--six months post-bottom--you made about 12% on the round trip. In December 2009, GDP was still shrinking and we were still actually in the Great Recession, and unemployment was over 10%. It was not at all clear that we were home free, so you made a gutsy call. There's no guarantee that you would be able to make the right call again.

Lesson I Learned: Timing the market is impossible, yes, but that doesn't mean your asset allocation has to be static. With the recent bull market, over the past four months I have gradually changed my asset allocation and am now about 65/35, with the 35% including bonds and cash. Previously I was closer to 85/15. In my written Investment Policy Statement I have decided that I don't really need to take more risk than that to reach my financial goals, unless we experience a true bear market. If we do, then I do need to take more risk, and I believe I will be willing and able to do so. Therefore, if there is a 20% decline I will move to 75/25, if there is a 30% decline I will move to 85/15, and if there is a 40% decline I will move to 95/5. I am 100% confident that I will stick to that.
Chicagoan23, you are my hero. This is the best post! Thank you for sharing
That's very kind of you, thank you. I'm happy to make a contribution to the collective wisdom that this site offers based largely on the extensive experience of the posters. Regular reading and thinking and reflecting helped me get to a plan that I am very comfortable with.

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Re: When did the bad news start in 2008?

Post by itstoomuch » Wed Jan 31, 2018 12:42 pm

After the 2008 incident,
I changed our IPS: new statements:1)Have a secure retirement using what ever methods and products necessary to assure that retirement 2) Never lose Money/Wealth :idea: :mrgreen: :oops:
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

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El Greco
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Re: When did the bad news start in 2008?

Post by El Greco » Thu Feb 01, 2018 10:39 am

For me the bad news began sometime in 2007. DW and I went to apply for a new HELOC at our then current mortgage lender, Washington Mutual. We met with a "loan officer" who seemed to be no more than 20 or 21 years old. As part of our financial planning, we always kept an active HELOC as a sort of emergency fund/car purchase fund/business startup fund.

At the time, I was unemployed and DW was a bit underemployed, so we applied for a "no income verification" HELOC of 100K. Our "loan officer" ran our credit scores and told us we could be approved for much more, so we upped our request to 200K. He kept urging us to go even higher to 300K but we were perfectly fine at 200K. After about 2 minutes of him tapping around on his computer, we were approved. Just like that! No income verification, no appraisal, no endless forms and documentation. Simply approved! He even handed us some temporary checks that we could use immediately.

My wife asked him jokingly if she could just leave the bank and go out and buy a Mercedes-Benz with one of the temporary checks. He remarked that many of his clients did exactly that. My wife and I were stunned and a bit rattled. We sensed immediately that something was very wrong with the financial system at that moment. We compared this loan application to to the previous HELOC we had applied for. It had been 10 years before for only 30K. At the time we were both employed, but the process was grueling, took weeks and required all sorts of proof, appraisals , etc. This was totally different and quite unnerving. We knew there was big trouble brewing in real estate but never connected it to the stock market. We had also noticed the wild appreciation in home prices in our area. For instance, my home was appraised at 360K by the county for property tax purposes. In one year, their appraisal jumped to 625K!

Then the market crashed. We were 100% stocks at the time, in our mid-50's, and haplessly rode the market all the way down. I knew enough not to sell, but watched incredulously as many acquaintances rushed to dump stock.

As the market was bottoming, I had the feeling we would never be able to retire, as we only had about 200K in investable assets left. We made a conscious decision to "go for broke". We improved our employment situations, saved like mad, and plowed as much money as possible into stock funds and several individual stocks that we felt had been hammered down to ridiculously low valuations (i.e. DOW and VALERO). We held on and are OK now. A little over a year ago, we went "Boglehead", and lowered our risk with a more sensible AA. We're at roughly 70/30 now and selling off individual stocks to get to 60/40.

I feel better equipped now for the next downturn, but what I learned was this: You might see something coming from one direction only to be hit by something you didn't see coming from the other direction. So, be prepared and stay the course.
Last edited by El Greco on Thu Feb 01, 2018 2:02 pm, edited 1 time in total.

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Re: When did the bad news start in 2008?

Post by Valuethinker » Thu Feb 01, 2018 12:01 pm

El Greco wrote:
Thu Feb 01, 2018 10:39 am

I feel better equipped now for the next downturn, but what I learned was this: You might see something coming from one direction only to be hit by something you didn't see coming from the other direction. So, be prepared and stay the course.
That was a really interesting "true life" thread. Thank you.

I think this is absolutely key. I saw a lot of the problems in the US housing market (I live outside USA and did not visit it in that time period) just by reading people like Dean Baker and surfing Calculated Risk blog.

And I knew Iceland was a time bomb waiting to go off. Country with 300k people whose entrepreneurs were buying major UK high street retailers?

But I did not see the problems in our own banking sector clearly. Northern Rock. But then RBS and HBOS. RBS was something like the 5th largest bank in the world by assets. Halifax Bank of Scotland was a merger of 2 famously conservative financial institutions. The gravity of the crisis nor its global dimension I had just not understood, even though one of the epicentres on the quake was on my own doorstep.

And the knock on effects on the UK economy and politics since then, leading to the Brexit vote last year.

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Re: When did the bad news start in 2008?

Post by BogleMelon » Thu Feb 01, 2018 12:24 pm

OP: The problem with the way you think is that you believe in the "Correction".

Being confident that there will be a correction, means that you are confident that today's market are overpriced, means that you believe that you see
something others do not see (because if they see it too, they would sell massively, and the market would have been crashed already).

Your assumption is against "Market Efficiency Hypothesis". i.e: today's prices already reflecting the possibility of upcoming crash.

For that reason, it is impossible to call the bottom or the top.

What if you cashed out today, then the market continued going up again 70% and then drop 30% (that would be 19% higher than today's)? If you bought at that future bottom, you would be still be buying high what you have sold low (i.e Locking losses).
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Re: When did the bad news start in 2008?

Post by sgr000 » Thu Feb 01, 2018 12:58 pm

Valuethinker wrote:
Thu Feb 01, 2018 12:01 pm
And I knew Iceland was a time bomb waiting to go off. Country with 300k people whose entrepreneurs were buying major UK high street retailers?
The best summary I heard was the quip: "Iceland is a large hedge fund that runs a small country as a side business."

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AtlasShrugged?
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Re: When did the bad news start in 2008?

Post by AtlasShrugged? » Thu Feb 01, 2018 1:13 pm

Lesson I Learned: Timing the market is impossible, yes, but that doesn't mean your asset allocation has to be static. With the recent bull market, over the past four months I have gradually changed my asset allocation and am now about 65/35, with the 35% including bonds and cash. Previously I was closer to 85/15. In my written Investment Policy Statement I have decided that I don't really need to take more risk than that to reach my financial goals, unless we experience a true bear market. If we do, then I do need to take more risk, and I believe I will be willing and able to do so. Therefore, if there is a 20% decline I will move to 75/25, if there is a 30% decline I will move to 85/15, and if there is a 40% decline I will move to 95/5. I am 100% confident that I will stick to that.
This is one of the best, most concise statements of how an IPS can document a couple of steps in different scenarios I have ever read. Nice job!
“If you don't know, the thing to do is not to get scared, but to learn.”

texas lawdog
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Re: When did the bad news start in 2008?

Post by texas lawdog » Thu Feb 01, 2018 3:39 pm

You could see some signs from a distance if you could have connected the dots.
A freeze in credit markets didn't happen overnight, but gradually showed up first on Wall Street...

Mar 2008: Fed intervenes to save Bear Stearns, most people think this is a one-time anomaly
Jul 2008: Fed provides extra liquidity to Freddie Mac & Fannie Mae
Sept 2008: Lehman declares bankruptcy, JP Morgan receives short term loan
Sept 2008: Fed loans money to AIG
Sept 2008: Fed confirms frozen credit markets by loaning banks money
Oct 2008: TARP pushed thru Congress

In between these dates you could see bank failures (Wachovia, Washington Mutual), mortgage service problems (Countrywide), problems in certain countries (Iceland, Greece)...

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Re: When did the bad news start in 2008?

Post by NotWhoYouThink » Thu Feb 01, 2018 4:43 pm

Not to get too topical, but I knew it. We all knew it.

It was common at the time to refer to cash-out 110% equity refinancing deals as NINJA loans (No Income No Job) or Liar loans (not an acronym, just an adjective.) Everybody knew that junk was being bought and sold and priced like gold. It wasn't an open secret because it wasn't a secret at all. What you saw if you read or watched The Big Short is that the only unknown was the timing.

Now we didn't know how much of the economy was going to fall apart because of this, but any sentient American could see a problem brewing. And still we stayed invested because we didn't know how long the market would stay irrational.

I stayed invested and gritted my teeth, but mostly because there were other more urgent things going on in my life was that an easy decision. No one really knew when to get out or when to get back in. It's comforting to think you would have been the one, but you won't convince anyone here.

knowledge
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Re: When did the bad news start in 2008?

Post by knowledge » Thu Feb 01, 2018 4:47 pm

Folks were nervous for a long time before things started to really begin. Which is salient point today. I recall debating whether or not we were in a housing bubble on other boards in 2004. This was further reinforced when I briefly entertained taking out a mortgage for my parents house and I got approved to take out $400k @6.34% (which was pretty good!) on income of $55k. It seems incredulous to even type what I just did, but that was what happened when you thought house prices would continuously go up.

The housing price top came before the meltdown. For me, the specific, "uh-oh" moment came when on the news of those two hedge funds busting at Bear Stearns. I believe it was in the summer of 2007. And the stock markets didn't really start diving until that fall.

My invested assets were too small for me to do anything about it. I just kept on buying through my 401k through the down times. Now that my invested assets are much larger, I hope I have the fortitude to stay true if something similar were to happen again. I believe I do, in fact I hope I have the gall to rebalance into equities if it does.

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Re: When did the bad news start in 2008?

Post by Fallible » Thu Feb 01, 2018 5:59 pm

There's really no need to rely solely on memory, sometimes faulty, of financial crisis dates. For quick reference, there are comprehensive timelines in Wikipedia:

https://en.m.wikipedia.org/wiki/Subprim ... _of_events
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Valuethinker
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Re: When did the bad news start in 2008?

Post by Valuethinker » Fri Feb 02, 2018 7:55 am

sgr000 wrote:
Thu Feb 01, 2018 12:58 pm
Valuethinker wrote:
Thu Feb 01, 2018 12:01 pm
And I knew Iceland was a time bomb waiting to go off. Country with 300k people whose entrepreneurs were buying major UK high street retailers?
The best summary I heard was the quip: "Iceland is a large hedge fund that runs a small country as a side business."
Good one ;-).

On Ireland "Up until 2001 we got rich by making things for export to other countries. After 2001 we got rich selling each other houses".

And (around 2010 when the Greek Crisis was starting to kick off) Q: What's the difference between Ireland and Iceland?

A: One letter, six months.

Valuethinker
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Re: When did the bad news start in 2008?

Post by Valuethinker » Fri Feb 02, 2018 7:58 am

texas lawdog wrote:
Thu Feb 01, 2018 3:39 pm
You could see some signs from a distance if you could have connected the dots.
A freeze in credit markets didn't happen overnight, but gradually showed up first on Wall Street...

Mar 2008: Fed intervenes to save Bear Stearns, most people think this is a one-time anomaly
Jul 2008: Fed provides extra liquidity to Freddie Mac & Fannie Mae
Sept 2008: Lehman declares bankruptcy, JP Morgan receives short term loan
Sept 2008: Fed loans money to AIG
Sept 2008: Fed confirms frozen credit markets by loaning banks money
Oct 2008: TARP pushed thru Congress

In between these dates you could see bank failures (Wachovia, Washington Mutual), mortgage service problems (Countrywide), problems in certain countries (Iceland, Greece)...
That timeline omits the international dimensions of the crisis.

You have to look back into 2007 though-- the Paribas announcement that they couldn't value the securities in 2 funds (August 3, 2007 from memory) was the Wil-E-Coyote moment for financial markets, at least in retrospect.

Iceland was already in trouble in 2007-- some abrupt market wobbles. Greece, from memory, was more 2009-2010, the immediate impact of the credit crunch was not obvious and Greece was not worse affected than other countries (there was no housing price crash there, for example, unlike Ireland + Spain; no Greek financial institutions had to be bailed out in 2008-09, AFAIK, unlike Germany, UK, Ireland, Spain, USA etc.).

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