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Investment Analysis Clubs / Macro Economic Trends and Risks
|Subject: Re: Catastrophe theory, instability, risk||Date: 10/10/2012 1:16 AM|
|Author: yodaorange||Number: 405654 of 501339|
Wendy said: The risk is high of a sudden crisis.
Wendy, I will postulate that things MIGHT be different this time around.
The consensus view back in March 2009 was that the financial outlook was somewhere between bad and hopeless. The SP 500 hit a low of 666. The Dow Jones hit a low of 6516. Both the SP and Dow have more than doubled since then. The US was losing ~800k jobs per month at the time.
So what changed? What turned the SP upward?
I suggest two main contributors to the turning point:
1) Treasury/Fed decided that the largest US banks were Too Big to Fail aka TBTF. Back then, there was widespread debate as to whether Citi and BofA in particular should be "nationalized" or not. Secretary Geithner prevailed in his view that the TBTF should remain independent, but NOT be allowed to fail. Recall also that the first "stress test" results also were released. Yoda's personal opinion is that this helped turn the markets around, but was NOT the main driver.
2) Many investors, including me, believe that the Treasury/Fed directly intervened in the US equity markets by having a â€