Why It's Different

Over the past twenty some-odd years, there have been a number of shocks to the market - 1987, the Asian crisis, LTCM, the internet bubble burst. I liken these events to owning a house that suffers from a hurricane, maybe some flooding, a leaky roof - some problems/damage more serious than others, but all caused by outside or rare events that can be repaired. What we have now is a house that is infested with termites and the only thing left is a thin veneer of paint holding up the walls. It is rot from the inside out. The house needs to be torn down (deleveraged) and rebuilt (new investment and spending in line with real economics, proper regulation and less leverage.) This is a process that will take a long time. It can be helped or hindered by government intervention. Only in hindsight will we know for sure the right thing to do.

The big question for stock market investors and traders is how much of the downside - the tear down - has been priced into the market?