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Why Today's Crisis May Rhyme With 2008-2009


  • "A new bull market!" says one. "The crash has only begun!" says another. These are your headlines on Seeking Alpha, which only goes to prove that nobody knows what lies ahead.
  • And after the previous week in which the markets went nowhere, we just had another week in which the markets went nowhere, although the month-long trend has been more positive.
  • Credit the mostly strong large-cap technology earnings and the Federal Reserve saying they will do whatever it takes to ensure the economy pulls out of its current nosedive.
  • And herein lies the basis for differing opinions. The current quarter will probably be the worst ever although a recovery should begin in the third quarter if only the coronavirus doesn't rear its ugly head again.
  • So, what's an investor to do? Probably not much as I still believe we follow a similar script as laid out back in 2008-2009.
  • Looking for a portfolio of ideas like this one? Members of CEFs: Income + Opportunity get exclusive access to our model portfolio. Get started today »

There was a lot of frustration from the bears last week as the equity markets, as measured by the S&P 500 (SPY), $282.83 current market price, continued their relentless climb from the post bear market closing low of $222.95 on March 23 and even reached almost $295 last Wednesday, a scant -7.9% from where SPY ended 2019 at $321.85. Still, that's almost a 32% rise off the lows.

How is this happening in an economy that has now lost 30 million jobs over the past six weeks while consumer and business spending has essentially shut down? Well, if you go back to what's now called the Great Recession of 2008-2009, there were many periods in which the market rose up to 20% or more even though we were in a bear market.

So, who's right? Has a new bull market begun or will we crash once again? I say both may be right though perhaps not to such extremes. I'm still of the mind that even though the catalysts of this bear market are much different than the Great Recession of 2008-2009, one could still expect that the steps toward emerging from this bear market may just be the same.

If you look back to September of 2008 to the low of March 9, 2009, this roughly six-month period represented the most volatile days and months of the financial crisis as well as when the US government and the Federal Reserve became much more aggressive in bail out programs and economic support. Sound familiar?

Here is that roughly six-month period divided out into three tables of roughly two months each. This is in chronological order starting on Sept. 2, 2008, showing the daily percentage changes in SPY and highlighting in the far-right column any day or series of days that saw a 5% or more

Thank you for reading my article. My goal is to give you observations and actionable ideas in Closed-End funds while educating you on how these unique and opportunistic funds work.

CEFs can be one of the most exhilarating and yet most frustrating security classes to invest in, and it's important that you have someone who can be a level head during up and down periods of the market. I hope to be that voice of calm when necessary. ~ Douglas Albo

This article was written by

Douglas Albo profile picture

Douglas Albo has been a financial professional for 20+ years and a registered investment advisor over a decade. His background includes several years at Smith Barney and Morgan Stanley. He has been covering equity CEFs on Seeking Alpha for well over a decade as well.

Douglas is the leader of the investing group CEFs: Income + Opportunity where he provides coverage of the best ideas in equity CEFs. Features of the group include: analysis of tax-advantaged distribution funds, real time trading alerts and ideas, weekly performance spreadsheets, a portfolio guide updated every 2 weeks, and chat for dialogue and questions. Learn more.

Analyst’s Disclosure: I am/we are short SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (29)

This situation is way way different than the Great Financial Crisis in 2008/9. Then, banks, and financial companies went under, along with many high paying jobs. We all know what happened. Restaurants, hotels, airlines, cruises, Disneyland were all still open and taking business. Retirees were still taking cruises. People still flew. Small businesses like hair and nail salons, and desert shops, etc etc were still open for the most part, and small business owners and their hourly employees still had jobs. The impacts were trickle down. Today, here, with this crisis, all small businesses were ordered shut by the government. Period. Imagine that. All small business owners suddenly had zero business. All lower paid hourly workers lost their jobs. Hence the huge unemployment number. No surprise. Higher paid white collar workers still have jobs for the most part, they just work from home, if they weren't already doing so (this has accelerated that trend). Totally different. This situation lends itself much better to government UBI type assistance payments to temporarily supplement lost incomes. So comparing what the market did back in 08/09 to today might not be a valid comparison. This is a natural disaster, it's not due to man made greed.
@Douglas Albo

Thank you for a very interesting article. I have also been trying to compare the current market to 08-09. I want make sure I am following your thesis.

Using your time frame, from 12/16/08 to 3/6/09, SPY dropped about 27%. So, in the current market, SPY at 279 should bottom out at about 204, correct? That would be a pretty big drop from where we are now. And we should hit that level around 7/10/20, correct?

Also, from the SPY 156 peak on 10/11/07 it took about 5 ½ years to fully recover back to that level. So, 5 1/2 years from 2/19/20 would put us at around 8/19/25 to get back to the 2/19/20 level.

So, if you get in around SPY 204, you would be up about 67% over a period of 5 1/2 years.

Of course, it probably won’t play out this way, but I think it is a reasonable possibility.
Correction from above:

"So, if you get in around SPY 204, you would be up about 67% over a period of 5 1/2 years."

Should be:

So, if you get in around SPY 204, you would be up about 67% over a period of about 5 years.

Sorry again,

"over a period of about 5 years."

should be:

over a period of about 4 years.

Please let me know if this is still not correct. These time periods are difficult to figure out.
ijeff profile picture
I've been trying my best to figure out what happens next. I think it is possible and maybe even likely the 3rd quarter recovery runs into too many headwinds. It seems like the market is anticipating this recovery materializing. If or when it becomes evident its not going to happen, the second crash and subsequent U shaped recovery is back on the table. As this article suggests, I believe that would continue mirroring the 2008-2009 recovery.
Enjoyed the crystal ball look and agree.
Don't fight the Fed.
Sunil Shah profile picture
@Douglas Albo
Did you see my question below.
I think it's v valid
Do you care to answer?

Thank you in advance
Douglas Albo profile picture
So you're asking why throwing trillions at the problem won't solve it? Well, I think it is right now as evidenced by the market's bounce off the lows. The question in the short run is will the virus gain new life as businesses reopen. We'll find that out relatively soon by all of the petri dishes around the country that may be re-opening too fast.

If so, then the markets will certainly not like that. If not, then we could continue to see upward momentum based on plenty of shorts and naysayers and the fact that those who wanted out of the market are mostly out already so there hasn't been a lot of sellers during this latest rise up.

My point is that it all depends on where the virus goes from here and since that is open to speculation, I'm using the 2008-2009 playbook because that's all I have to go on with the Fed and Govt responses the same as back then.

In a worst case scenario, i.e. the virus returns and flares again in the fall and we have no vaccine for well over a year, then no amount of money from the Fed is going to stop the markets from re-testing and probably heading lower. That doesn't mean they won't eventually succeed but it will be pushed out too.
Sunil Shah profile picture
@Douglas Albo
'I'm using the 2008-2009 playbook because that's all I have to go on with the Fed and Govt responses'

WELL if you are only using the GFC and the monetary stimulus, of course it rhymes with 08/09!!.

Look I know what I'm asking is difficult, and I'm asking you as your article exhibited a competence.

So if the government stimulus can bridge the hole for the lost economic activity ( eg a credit or rebate to the lost custom of his restaurant as people eat out less)

Why can't the monetary injection gloss over the temporary economic hole until habits revert back to eating out.

I look forward to your response.
Thanks in advance.
@Douglas Albo
Let's not forget with an election coming up it's politically expedient for the party in power to promote the most optimistic scenario rather than a more objective one.
scoots profile picture
"....if only the coronavirus does not rear its ugly hear again...."

A reminder: the ugly coronavirus is still raising its ugly head. Just because some areas are salivating to get "back to normal", we should not overlook the fact that cases and deaths are still rising steadily, with occasional spurts. (Even Trump admitted that estimates are too low.)

So Round One if NOT over yet. And when it is, most knowledgeable virologists say another round may well be here in the fall or winter (if Round One is even over by then). Will we have a vaccine by then ? Doubtful.

Caveat Emptor !
ChequeMate profile picture

Vaccines take decades to develop. Polio .. discussed in the mid-1930's and finally both Salk & Sabin came up with a successful vaccine .. in the early 1950's.

That's more the norm.

Covid-19 is a derivative of SARS which there has been zero luck on any vaccine this past decade.
Great article. I would add that the real impact of COVID will reveal itself when the businesses will be allowed to reopen and the real demand (for face to face establishments) and the real costs of serving F2F customers become clear. Maybe we will have an effective and safe vaccine in September and the virus will not mutate.
Michael Dolen profile picture
Yeah, no doubt Congress and the Fed will have to do much more - a few trillion more. I did a lot of buying at the recent lows and although a re-test or lower is possible, I'm not sure we will see it. Partly because of stimulus and partly because of predictable human nature.

Good or bad news is always relative. Even though the daily death count is a multiple higher than it was during the 3-23 low, the market is much higher. Why? Because markets and real economy do no correlate and never have. People don't seem to understand this. Often times all it takes for a market reversal is a slower pace of bad news, even if the bad news is getting worse. There's no doubt that almost every measure of the economy will be getting worse, not better. What determines if we re-test lows - or go lower - will depend on forward expectations.

If investors believe (whether falsely or not) that Q4 2020 or Q1 2021 will be a rebound in economy, then we may not re-test. Even though I am extremely pessimistic about real economy, I will go on record right now and say I would not be surprised if Dow, S&P and Nasdaq all finish higher for the year.
ChequeMate profile picture
@Michael Dolen From your mouth to G-d's ears .. !
razztraffic profile picture
I wonder what an overlay of the '29 - '33 S&P would show, compared to today's S&P? I suspect - but as yet it's just a theory - that this comparison ['29-33 to today] would prove inciteful, perhaps even more so that the author's comparison of 08/09 to today. It's just an idea, perhaps worth the author's time looking into.
7865671 profile picture
The 1918 flu might be a better comparison. seekingalpha.com/...
Can’t compare the power of the federal reserve bank then to the power of today’s. Don’t fight the fed.
AAA Investments - PayONLY4Performance profile picture

“Don’t fight the fed”

Yep, that’s ALWAYS the answer...the one-dimensional answer 😳 

...even though the Fed has proven over many decades to create more problems than they resolve
Sunil Shah profile picture
Great and stats.
Your premise on this time its different is that QE(n) or TARP in past CANT SOLVE the underlying economic malaise.
And you give behavioural changes due to covid.
I agree life and habits will change.
(and thus make up the restaurants lost custom by a bailout for a simple analogy)
Why wont throwing money at the problem fix it.

I dont know if you saw out today, that the FED will begin buying ETF's

although this my opiinion:
This is the beginning of the end of free markets
If there is no price discovery -A FALSE BUYER - what at are you doing.
get ready for total havoc.


@Douglas Albo
tell me why not?
thanks in advance
This has been happening several times in the last decade. Real inflation has been gradual despite government saying otherwise. I pick up pennies all the time in grocery store parking lots because they aren't worth picking up!
I heard there is a vaccine folks are crazy for profits so what you are going to be hearing a lot is this and that company has a vaccine just to promote their stock.
I don't pretend to know how long the recession will last; nor do I have any sense as to how low the market may get. At this point I have roughly 25% investible cash available to deploy.

So -- beginning in April (invested the full amount each week) and expecting to continue into the fall, my plan is to 1)identify stocks, funds and other assets to invest in, with price ranges I am willing to pay; and 2)commit to investing 3 to 4% of my investible cash each week, in small amounts per purchase, spreading the investment across 4 to 8 assets. For each asset I have a maximum amount I am willing to invest in to maintain diversity. Maintaining this discipline will mean I will become fully invested by November. The 'no commissions' regime makes such a plan doable... I can put $1200 to $2000 into a given security on any day without worrying about losing too much; and if the asset I like goes down in price I just may buy more the next week or so (until I hit my maximum).

As my asset allocation program is income focused, as these investments are made my income should increase over time. If we get another few weeks or even a month of downturn, the steady 3 to 4% each week will simply buy more in those periods. Of course, the overall plan assumes a bottom will eventually be reached and the world as we know it wont end. If the market turns up quicker than this fall I may miss out on some of the upside; but that is a 'problem' I am willing to embrace. And if I am wrong about reaching a bottom this year, then none of this matters does it. As a minimum I will have some level of income to live on.

(Complete disclosure -- my plan includes and allocation of 5 to 8% in gold and gold miners which is right now helping to mitigate the downside -- not adding more here but maintaining my position. This has been a constant element of my plan and remains important given the possibility of inflation hitting two years or so down the road . My plan also includes an eventual maintenance of 5% cash, which is sufficient itself to live on for a year combined with social security and other sources.)
@TimNeuman it is likely that companies will cut dividends so the income part may not work out.
I'm glad you mention the difference between our present crisis and that of 2008 2009 in as much as back then there was a clear path towards to recovery. My stepson is employed by a small very successful and popular chain of high volume inexpensive gourmet focused foods. The stores are still very busy but because of the safety requirements in this epidemic, sales are off by 50%. They cannot tolerate crowded isles and lines at the cash register. I believe this will become a common issue that even the best business's, at least in retail, restaurants etc. will face until we have a vaccine and many will not survive. I think without a vaccine in the next few quarters, we will see more bankruptcies, closures, foreclosures and cuts in dividends as both companies and individuals struggle to survive. I believe the science that predicts a vaccine is unlikely to be available for at least a year. The crowds on our beaches and in our parks that are ignoring the rules regarding distancing are likely to exacerbate the infection rate as well. We should all hope for the best but be prepared for the worst, we will recover but its likely going to take far longer than the couple of quarters projected by some elected officials.
if this new COVID world order chops retained earnings by say 50% (20% for pure tech companies like FB with high earnings/employee) due to internal social distancing and other measures (not saying it will), then longer term, valuation gets... "interesting"
Alternative Investing profile picture
I agree with article overview...financial impact of covid 19 will "initially" reveal itself by mid July in Q2 earnings results...it will be ugly!
(And thats just the April/May impact...who knows about remaining months in 2020)

If amzn is projecting :

"Amazon (AMZN), $2,286.04 current market price, gave us a hint of that in their earnings report last week when they said that next quarter's earnings will go from an expected profit to a loss"
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