The More Things Change...

I posted an article on Seeking Alpha entitled “A History of Market Violence” on March 5, 2009. This, of course, was the day before the market bottomed on March 6, 2009 at 666.79 on the S&P 500 Index. Much time has passed since I posted this article, so I hadn’t read it for quite a while. But a comment from a reader in one of the posts over the weekend caused me to revisit it, and it was striking what I found. Even though nearly two and a half years have passed with the market rallying +105% from its March 6, 2009 trough to its May 2, 2011 peak, virtually nothing has changed. All of the same underlying problems that were plaguing the economy and markets at its very bottom are still festering today, over two years later. And in some cases, they’ve become quite a bit worse. Given where we are now in the cycle, this suggests potential downside for stocks in the months ahead.

Returning to July 2011, it is worthwhile to revisit each of these items point by point.

First, the discards. Point number 2 warrants no further discussion, as monetary policy prior to the downturn remains what it was. Point number 6 on protectionism has also not surfaced as a problem to this point, short of a few minor rumblings along the way.

But the remaining items are notable. Here is where we stand today over two years later.


The aggressive fiscal and monetary policies enacted worldwide were supposed to buy us time. But clearly, we are no further along than we were nearly three years ago in addressing the major dilemmas facing us at the depths of the crisis.

This raises an important issue. On March 5, 2009, when I wrote my original article, the S&P 500 stood at 682.55 and was hours from bottoming at 666.79 the next day. Over two years later it peaked at 1370.58 on May 2, 2011 and still stands at 1316.14 as of July 15. Thus, the stock market more than doubled along the way since I wrote my original article, but virtually none of the underlying problems have been solved. So if many of the issues that were prevalent when the market was trading at 682 on the S&P 500 on March 5, 2009 are still problems today, in an already sluggish global economy that is showing signs of slowing further, is the market rally that we have achieved all along the way sustainable? Has the economy truly achieved what the market has so unflinchingly priced in to this point? Or are we at risk for considerable downside in the months ahead?

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