More on 1930s
Larry McMillan had a nice piece in MarketWatch about how the current market compares to the 1930s as well as a few other bear markets. We posted a comparison to the 1930s here last week so scroll down to see it.
So, we have three previous time periods in which a severe bear market shook the financial system. These then gave way to strong rallies, fueled by the liquidity thrown into the system to stem the bear market. However, once those rallies ran their course, reality set in and prices drifted, grinding their way lower for three or four years.
Two things here - first, the concept of a liquidity rally.
The second is the term "grinding their way lower." That is how real bear markets end when the market demoralizes everyone and nobody wants to own stocks.
Why you shouldn't sweat Europe
Do rising credit spreads and tumbling stock prices signal that the U.S. is in for another shock like the one that sent the economy into free fall in 2008?
Glass half full
Don't bet on it. While there are problems all over the globe and stocks could easily head still lower after a recent correction, there are signs the domestic economy is strong enough to weather the storm.
"People are completely ignoring any good news domestically," said Matthew Keator, a partner at the Keator Group wealth management firm in Lenox, Mass. "We've been here before, in 1994 and 1997-1998. We can handle an international crisis."
What's more, Keator said, corporate balance sheets are in good shape after big companies slashed spending and boosted productivity. That should help the biggest corporations to keep growing, even as small businesses struggle to get financing and compete for penny-pinching customers.
Keator concedes that there are plenty of problems around the world for investors to consider, from a double-dip in real estate, to the problems in European banks, to the fiscal health of the United States and other rich countries.
But he says that stocks rallied so sharply from their March 2009 lows that "everyone has been looking for some bad news" that would justify a decision to cut equity exposure. As troubling as the European banking problems are, he believes policymakers will sooner or later devise a response that will stamp out the current political rancor among euro zone members and stabilize the situation.