Under The Matress Is Good

Zero Yield: The flight to safety achieved a new benchmark as Treasury sold four-week bills at a 0% yield yesterday, and the yield on three-month bills briefly turned negative.

This is certainly a sign of fear gone wild. There is no trust left if institutions are willing to pay the government to hold their cash for them.

Remember, the capital markets are predictive mechanisms. They do not reflect what is happening today but rather the combined forecasts of all the participants.


For contrarians this has to be a good sign.

How Bad Can It Get?

Some tidbits I picked up over the last couple of weeks. Thanks to the guys at MFS.

THE LAST TIME - The S&P 500 is down 37.7% YTD (total return), on pace to suffer its worst calendar year result since 1931 when the index fell 43.3%. In the 5-years after the 1931 loss (i.e., 1932-36), the S&P 500 gained +176% or an average annual gain of +22.5 (total return). The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market.

WORST IN 66 YEARS - The closing low point during the current bear market occurred on 11/20/08 (i.e., just 11 days ago) when the S&P 500 finished at 752, down 51.9% from its 10/09/07 peak close of 1565. The “peak to trough” drop of 51.9% is the worst for the stock index since 1942

A LOWER LOW - The S&P 500’s closing low value of 752 during the current bear market (set on 11/20/08) is less than the closing low point from the last bear market (i.e., the 2000-02 stock market decline), the first time that has happened since the low close from the 1973-74 bear market was less than the low close from the 1968-70 bear market

REAL ESTATE SALES - In July 2006, the median sales price of existing homes sold nationwide peaked at $230,200. The national median sales price has fallen to $183,300 as of October 2008, a 20% decline and a fall of almost $47,000 (source: National Association of Realtors).

WISHFUL THINKING? - Nearly 1 out of every 3 US homeowners (32%) believes the value of his/her primary residence has increased in value over the last year (source: USA Today).

BANKING BUSINESS - 22 banks have failed in the country YTD. Over the previous 6 calendar years (2002-07), 22 banks failed in the USA. As of 9/30/08, the government is monitoring 171 banks that are in danger of failing (source: Federal Deposit Insurance Corporation).

THE RANGE - In the 1-year following the low point from each of the 9 bear markets that have occurred since 1957 (not counting the current 10th bear market) the S&P 500 has experienced a double-digit return. The best of the 9 produced a +58.3% return. The worst of the 9 was up +23.2%. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: BTN Research).

THEY TOOK THEIR TIME - 7 years ago this Wednesday (11/26/01), the organization responsible for determining the beginning and end dates of US recessions declared that a recession had started on 3/31/01. A later announcement that this particular recession had lasted only 8 months and that it had ended on 11/30/01 was made public on 7/17/03 or more than 1 ½ years later (source: National Bureau of Economic Research).

As of 12-01-2008 they made it official that we are currently in a recession that began in December 2007.