I applaud my dueling partner Ryan Fuhrmann for both his realistic assessment of the housing mess and his contrarian-focused value bent on how to invest in the crisis. Unfortunately, his analysis focused only on the financial aspects of the crisis and neglected one very key point: 2008 is an election year.
Politicians of all stripes who are looking to be re-elected or elevated to higher office are bending over backward to be seen as doing something -- anything -- to "help" cushion the crisis. Unfortunately, with all their talk of heavy-handed interventions, what they're really doing is displaying their utter ignorance of how financial markets work and recover. With that backdrop, 2008 may well shape up to be a disaster.
Even assuming Ryan is right and there's enough panic currently priced into stocks to let some be legitimate values at this price, that's no assurance that they'll recover in 2008. After all, take a look at how long it took tech stocks to bottom out after the 2000 implosion:
|
Company |
Post-Bubble |
Date of That |
|---|---|---|
|
MicroStrategy |
$4.20 |
7/3/2002 |
|
Hewlett-Packard |
$10.75 |
7/24/2002 |
|
Novell |
$1.57 |
8/14/2002 |
|
Alcatel-Lucent |
$2.03 |
9/24/2002 |
|
Sun Microsystems |
$10.56 |
10/7/2002 |
|
Nortel |
$4.30 |
10/10/2002 |
|
Level 3 Communications |
$1.55 |
5/16/2005 |
|
All data split-adjusted |
While the technology bubble may have burst in 2000, many of the surviving stocks involved in that crash didn't actually start recovering until 2002 -- or later. What would make 2008 (the year after the housing crash) be any better than 2001 (the year after the tech crash)? I sincerely hope that happier days are in front of us, but I fear those days may not be seen until 2009 -- or beyond.
Don't forget to:
