What Is The Difference Between 2020 and 2008?
by Eric Nager on Mar 19, 2020
Both years have witnessed sharp market selloffs and fears being turned into panic. But the differences are greater than the similarities. In 2008 there was a financial crisis and the financial institutions themselves (the backbone of the financial system) were in jeopardy. Central banks and government policymakers were totally inexperienced and unprepared to deal with the problem. Consequently, it took a long time for them to come to the point of effectively combating the crisis.
Today we have a virus-induced crisis that finds our banks in strong financial shape as a result of lessons learned in 2008. The travel and leisure industries are the primary focus of the problem. The attached graph shows that virus-caused market selloffs are usually short-term in nature. Most significantly, the central banks and policymakers in the US and around the world are acting and will continue to act with “whatever it takes” to save the financial system. In 2020, they have not procrastinated and are eager to get on top of the crisis. It is likely they will flood the system with money which ultimately will end up in the stock market as the recovery takes place. Stay tuned … when this crisis passes (and it will!) there should be very good opportunities again.
Why have we been selling some positions in a down market?
We do not believe in “buying high and selling low;” however, in light of these unusual circumstances, we have been and are selling funds that have not performed up to our expectations in order to have some money on hand to deploy into stronger performers. As this crisis passes, we want to be in a position to capitalize on those better opportunities. For now, you will see significant cash positions in your accounts.