2008 vs Now: Priced In

Research & Analysis
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There’s a lot of discussion regarding 2008 but I’m not sure many people are familiar with what exactly that looked like so I wanted to take a second to post the chart with some markings to put things in better perspective.

While we refer to “The Great Recession” as “2008”, it actually started in 2007. The market hit peak in October of that year at $157:

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Now, 6 months off that peak, like where we are now in our current market, SPY had fallen 15%. Today, we’re down 23% in a similar timeframe, outpacing the 2008 crash.

Part of the reason I wanted to post these charts is because I think people envision market crashes as a “straight down” sorta deal and they aren’t really. There is a whole lot of volatility like we’re seeing now but really only a few very short lived moments of “holy shit”. Pay special attention to how there weren’t very many gaps in the chart, a revelation that I’m sure is somewhat surprising to most.

So let’s look at today and compare:

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Like I said previously, we’re down 23% off peak while “The Great Recession” was down 15% in a similar timeframe. Does this mean that things are worse now? Potentially, however, I have another theory and it routes back to our favorite copypasta “!pricedin”. The markets are overall more efficient now-a-days than they were in 2008. There is a whole lot more technology and a whole lot more research and understanding of the economic forces at play, especially having “seen” 2008 which I’m sure taught investors a whole plethora of lessons.

Now are the forces at play here the same? No. The housing market this time around seems to be “okayer”, inflation is higher and so on and so forth. But the market is complex and simple simultaneously. While a bunch of factors are leading to an economic downturn, it’s still just an economic downturn in the eyes of the market.

“The Great Recession” lasted 1 year and 5 months or so with an absolute bottom occurring on 03/08/09 at -57% off the peak almost a year and a half earlier, which I’m sure is a bit slower than most had in mind as well. “The Big Drop” occurred between 10/03/08 and 10/06/08 almost a full year off peak and lasted only a couple days before resuming “normal” volatility for the time.

So all of this is to say that if you’re hoping to catch “the crash”, you’re looking to catch 7 days out of 510… if it even happens at all. At almost every stage of the 2008 crash, unless you were taking very long out options you would’ve been blown out getting too dedicated to either sentiment. While the trend is down, the path to get there is full of ups and downs. So make sure that if you’re trading these movements, you’re playing the catalysts as they come (!mcal is our bible right now) and be willing to realize when the effects of those catalysts have probably been !pricedin. If you are looking to catch those 7 days, it might be worthwhile to research exactly what triggered “The Big Drop”, specifically what policy decision, data point or news catalyst started that selling pressure, otherwise, you’re just gambling.

Food for thought. :pepepray:

Either this is coherent or it’s a COVID induced fever rant, ya get what ya get :kekw:

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Thats for the thoughts @Conqueror. One thing I have been looking for to help gauge the potential weight of catalysts in during the volatility are the historical news events or catalysts that occured at the market inflection points during the great recession and dot com bubble and see how we can use that historical data to identify better buy an sell opportunities.

Do you know of a repository, free or low cost, that overlays this macro news information on top of the chart for the 2001 and 2008 bear markets?

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You know I hadn’t even thought of something like that but holy shit would that be useful. I’ll do some Googling myself, but if it doesn’t exist that could be easily achieved via Googles news APIs I believe.

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That’s interesting. I read a book about Paulson’s fund a while back and how they made their bet against subprime mortgages. The book reckoned that one of the indicators that they used was an in-house developed chart that essentially tracked house prices over time and inserted macro events like crashes.

It always felt way too simple an explanation, but that perhaps speaks to what Conq is saying about how markets now are much smarter than they were then. On the other hand, if it worked once, worth trying again.

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So I’m still reading through this but thought I get this in front of other people since I’m in a drug induced state and my brain might not be the best to trust right now but a bunch of things happened leading up to 10/8/08 and on the actual day as well (I know go figure) but someone put together a written timeline on Wikipedia of the events: Global financial crisis in October 2008 - Wikipedia

Hope this helps with the analysis. My personal feeling is that we are going to volatile for a time and eventually find a bottom that is closer to when SPY p/e is between 16 to 18. Right now we are at a p/e of 21 so it would appear the market has some room to fall but there is no guarantee of that. I think if the sentiment in a few months is that inflation is coming down then the market would like start an up trend.

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One other point to make here is that if you are looking to profit off a recession, you are better off taking fewer numbers of options with expirations further out than you normally buy. I think if you polled most of the people on this server, all would say we are still in correction mode and likely heading toward a recession, but no one knows when that will happen. You don’t have worry about “capturing the 5 days” if you are buying puts that have months until expiration. Yes they are more expensive, but they’re also safer because they come with a higher level of certainty on macro-economic conditions. Even now, when scalping SPY, I try to get my calls and puts with expirations longer than a week or two because they still move with the price but I’m hedging against an unexpectedly red or green day.

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Weird to think that we haven’t even reached the peak before Covid crash. I need to start catching up on things because it feels like interesting things might happen in the next year or so and that means Valhalla in it’s prime.

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@NotAMouse putting some of the TF discussion here

You are right, the issue making these comparisons are the circumstances are not similar at all. If you only look at just the chart comparisons between 2008 and overlay now, we are about to fall off a cliff, but Lehman brothers / other big financials had to start going bankrupt for that drop to happen. We dont have any such huge catalyst right now. We are just waiting for more inflation or earnings data.

This period economically is probably most similar to the 1980s stagflationary era, but data was harder to come by then, and harder for us to research because news archives and charts not readily available.

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I think this is a valuable lesson, while the market is not the same as 2008, and the conditions are different - the gist of the posing, its not a day drop, or a line down (or up) is the most important lesson, there are green days and red days and a general trend, both on the way down, near the bottom and on the way back up. Of course there is always the “big day” but guarantee that will hit you out of the blue if and or when it happens. And it could happen a couple times.
Thanks for pointing this out to everyone, valuable knowledge for all to see.

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For those that haven’t read it, this thread is a decent read on why maybe you’re not seeing the movements you’re expecting out of these releases. As time has gone on, the thesis that the market is more efficiently pricing in these potential catalysts has grown stronger.

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https://finance.yahoo.com/news/imf-chief-warns-debt-crisis-143542550.html

This is not 2008, it is 2020/2022. There are economic pressure points ready to snap since 2020 that were not around in 2007. The U.S. halted a trillion dollar economy for over a year due to a virus, printed & disbursed trillions in free money, is now waging economic war in the form of sanctions against Russia, sends billions to one side in a war disrupting global grain + oil industries.

The debt market bubble bursting will drag this economy down to a liquidity crisis worse than 2008.

https://www.msn.com/en-xl/money/other/how-china-s-henan-bank-scandal-threatens-a-crisis-of-confidence-in-nation-s-financial-system/ar-AAZxjKv

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None of which this post is refuting. Its stating that if you’re looking for that outcome, you need the right data, none of what is coming out is “the last straw” and the market has done a reasonably good job thus far pricing in coming events.

So instead of throwing the armadillo helmet on and shouting from the rooftops like Burry, try to figure out where, if you’re right, the actual catalyst for this “crisis” would come from. Otherwise, you’re just going to keep watching puts expire worthless.

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The counter to this is that we do not have the same unsustainable housing bubble that is about to burst, which is what happened in 2007/2008. In addition, credit markets have been flush with cash for years now and liquidity is not currently an issue. I agree that there are economic pressure points that existed before Covid that exist today, I just don’t see those problems being realized in the form of a recession on even close to the same scale as 2007/2008. Certainly not worse.

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I was just posting on the June CPI about a similar thing, but I think we might be instore for more of a death by 1000 cuts vs a complete and total wipeout. Will while greatly harm general middle class and below could be beneficial for companies, and there stock prices.

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I think the potential catalyst for “the next leg down” would be the upcoming earnings season for the large caps.

Q2 might still be strong but guidance will be key.

Analysts’ earnings forecasts have also not been adjusted down since ATHs. There was a chart I posted somewhere that showed this well.

Or earnings will be OK and nothing happens.

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That’s kind of the vibe I’m feeling. SPY has been going between a $20 channel for the past month. We’ve seen extremely low volume days. VIX has been sitting pretty low, there’s no sell pressure, and there’s no buy pressure. It’s like everyone is waiting for something big. Maybe that something is to see how the mega & large caps do with their earnings & guidance in the coming weeks.

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You have some points. However nonetheless as one of probably less than 50 people in the server that were actually in the 08 economy and recession. I feel like I can say it’s not even close.

The biggest issue we face now is supply chain. In any kind of capitalism economy (thankfully we live in) supply and demand drives the economy. Supply down price up. It’s fairly simple economics. In 2008 demand lacked so it was almost actually inverse 2022.

Mortgages were abundant houses were abundant there were so many cars on the ground that auto manufacturers went bankrupt because dealers wouldn’t take more but they had to build them. Frankly the recessionary times we are currently in will be short lived in my opinion and strictly is reliant on supply chain. Once supply starts to level off with demand which we already are seeing in retail goods with WMT TGT COST housing is slowing down which means the supply of that will continue to grow.

In 2008 there were too many cars too many houses too many of everything.

In summary they are similar that both years were supply demand issues. However then supply was too great for demand. Now it’s the other way around.

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This is the thing that is bothering me the most. Everyone talks about the housing market because of what happened on '08, but the auto loan defaults don’t seem to be getting as much attention as they should. This could start a chain reaction into other areas as well.

I also think we’re in for some trouble in the fall/winter when it comes to Covid. The world seems to think Covid is over, but if what they’re saying about BA.4 and BA.5 is true, we could see a massive spike. While it (thankfully) probably won’t be as deadly, I can see it affecting the labor market pretty heavily.

As long as inflation is raging on too, people will need to keep making cuts to their expenditures. I just don’t see good things, but that could just be because I’m still shell-shocked after living through 2008. I hope I’m just being overly pessimistic, but right now is reminding me of that part of '08-'09 when everyone thought the worst was behind us, and then the bottom fell out.

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Are auto loans sizable enough to cause a chain reaction? People borrow hundreds of thousands to millions on home loans and take equity loans on one house to buy more houses. Whereas auto loans are 30-40k. Unsure if that’s enough to ripple into the broader economy.

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I did a little write up on the auto industry, currently loans sits near 1.4 Trillion, with an average payment on a new vehicle sitting around $700/month.

Edit: I tried just sending the link, not sure why it expanded like that, my apologies

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