Sunday, August 21, 2011

Another recession like 2008?

The Dow Jones Industrial average lost more then 12% of its total value in the last three months.

A sign another recession is coming up? Will it be anything like what we went through in 2008? Most newscasts and articles on this topic claim that it will never be anything like 2008, the main reason being lessons learned from the great recession, banks that are better structured and have more cash on hand and a lower unemployment rate. Over and over again I hear; “This is not 2008”. But it makes me wonder, even with all those figures factored in, how do most analysts come to the conclusion that it will be nothing like we have seen in 2008? There's more turmoil in the world then in 2008, think Middle-East and Europe with their debt problems. On top of that the U.S has built up more debt, so bad the debt ceiling even had to be raised, doing so losing favor with the public. China, Brazil and other merging economies are becoming stronger and stronger, yet they claim it will be nothing like 2008. How about something like 2008 but worse? Something along the lines of the past three months something happened with the global economy. It was recovering at a pretty steady pace, slow but steady, something changed and we all have to figure out where to go from here.
I'm not trying to be all doom and gloom here, but as a trader I have to be cautious where to put my money. To tell you the truth I still believe the economy is recovering only at a very slow and sluggish pace, getting a lash once in awhile from the great recession but the bottom line is that the economy is recovering. I base that analogy on the fact that the unemployment rate is nothing like or heading towards what we have seen in 2008.
But in these volatile times it is hard to determine what works and what not.
Especially last week was a hell of a ride, something I've never seen before. One moment the Dow was down over 400 points then it was up about the same amount, quite a roller coaster ride if you ask me. Many people on- and offline ask me pretty much the same question when it comes to this subject; “what's going on and where should I put my money”. I'd be confident answering these questions under 'normal circumstances' if the banking sector wasn't performing so poorly, especially one giant in the playing field Bank of America, (BAC). 
I always try to be positive in bear markets like these (although it's pretty difficult) and look at it as a big bargain bin of stocks, how low can a stock go before it's cheap enough to buy?
I mentioned Bank of America earlier, take a look at the stock below;
with the help of fundamental and technical analysis and a bit of common sense it should be relatively easy to determine whether or not the stock price is bound for an upswing.
My point is, that I see a bear market as a positive thing, stocks are cheap – BAC being an example. In times like these look at the majority of stocks and compare them to their 'usual performance' under 'usual times' and determine if the stock looks cheap enough to buy. I wish I would have bought some stocks in 2008 because they were so dirt cheap.
On a last note and I really want to emphasize on this fact that I have been saying all the time about the level the volatility index (VIX, VXX) was trading; Since the beginning of this year I said it all along that anything that trades under 20 points is a bargain. The VIX is one of the most important indicators that you should have on your radar when you trade stocks, etfs or options. The VIX and the Dow Jones index give you a general idea where the economy stands, even at a global level; since the economies are all connected.

VIX now trading in extremely high territories and until this index is not going down to in the 20's again (normal trading levels) which will be soon (another reason I recommend a short position on the VXX, the ETF that tracks the VIX) I don't recommend buying any stocks right now, rather buying ETF/ETN's, something that's easier too analyse. Same goes for OIL and Gold (GLD). I see gold rising to the $2000 level by the end of the year... more about that in another post.

No comments:

Post a Comment


All opinions expressed, trade recommendations/advice on this website are solely of John van der Munnik and are not affiliated with any investment firm or any other organization. You should not make an investment only based using this website VDM Trading for your trading needs without seeking help from your own financial advisor.