Our bull market has hit 5 years today as on this day in 2009, S&P 500 hit a generational low of 666 and since then markets have never looked back. This bull market was born in fire and has shown unbelievable tenacity and staying power. This is a true testament to the nerves of all portfolio managers and money managers who believed in sustainable market rally when odds were stacked against it. In order to fully appreciate this, we need to fully relive the events of 2007, 2008 & 2009 as every day was bringing one bad news after another. When markets started going up in March-09, there were widespread pessimism and nobody would have fathomed a quick recovery. At that time there were too many unknowns, the Federal Reserve had already carried out massive amount of asset purchase since October, 2008 and the Federal Reserve s balance sheet was already over bloated and there was consensus from the mainstream economic community all the unconventional intervention using the Federal Reserve s balance sheet may lead to high inflation down the road and it was also not showing any signs of immediate impact on the economy, which was decelerating at a rapid clip, businesses were shedding jobs in the 500,000 to 700,000 range and throughout 2009, the economy continue to see job losses and earnings of S&P 500 was declining at an unprecedented rate. Under these circumstances, it was logical for anybody to disbelieve in a sustainable market rally. Ironically the only way to get out of this negative feedback loop was to create a counter- cyclical sustainable market rally and regain the business confidence. It was only when the markets held its nerve and refused to give in, business community regained their confidence and bleeding on the jobs front stopped. By the beginning of 2010, the credit markets had shown signs of improvement with credit spreads, swap spreads & ted spreads and other credit related metrics having reverted to mean as the Federal Reserves earlier asset purchase and other interventions were showing positive results, the financial system had stabilized having successfully weathered a Federal Reserve induced stress tests and fiscal stimulus started hitting the economy giving a boost to GDP, consumption and housing numbers. When everything looked rosy by the middle of 2010, came the next tsunami in the form of European sovereign debt crisis starting with Greece and gradually spreading to Ireland, Portugal, Spain and Italy with concerted campaign by some sections of the media, Euro & Eurozone will break- up. Had Eurozone broken- up when the confidence in global economy was so fragile, it would have been sure global depression and while that was dragging on, markets never fully capitulated notwithstanding bouts of volatility based on news flows out of Europe. While European sovereign debt crisis was dragging on well into 2011 sapping investor confidence came the double whammy of Debt ceiling debacle and since hitting a high of 1360 in April, markets declined through September touching a low of 1060 and it looked like market rally was a cyclical upturn in a structural bear market.
Posted on: Thu, 06 Mar 2014 07:53:34 +0000
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