I don’t usually find insights about the stock market in classic novels…
But a quote from “A Tale of Two Cities” sums up the current market perfectly:
“It was the best of times, it was the worst of times…”
You see, as my colleague Lou wrote yesterday, we haven’t “hit bottom” yet on the coronavirus crisis.
But as he explained, when we do hit bottom, you could earn a fortune from the rebound.
So today, I’ll show you why some “best of times” profits could land in your pocket sooner than you’re expecting.
The Crisis of 2007/2008
To kick things off, let’s look at the Global Financial Crisis (“GFC”) of 2007/2008…
That’ll help us understand why the crisis today is so different… and why the profit potential is so significant.
Simply put, the GFC was caused by shameless bankers.
These bankers set up ordinary people with mortgages they couldn’t afford.
Then they packaged the mortgages into complex financial products, and sold them to investors who had no idea what they were buying.
When millions of these mortgages went into default, the markets froze. No one knew how much risk was out there, and no one had a clue how to make things better.
That’s why it took years for the market to recover.
But when it comes to the current crisis, it’s a very different story.
Let me explain the three main reasons why…
Difference 1: Role of the Banking System
In 2008, the source of the crisis, and the reason for all the fear, was the banks.
If the banks failed, the entire global financial sector could come crashing down.
But as Nellie Liang, former director of the Fed’s Financial Stability Division and now a Brookings Institution researcher, has said, things are different today:
“What’s happening now isn’t about a weak financial sector,” she said.
The fact is, the global financial system today is in great shape…
Ever since the GFC, banks have been required to hold larger reserves. And meanwhile, the longest bull market in history has filled their coffers with cash.
As Stacy Francis, President and CEO of Francis Financial, has said, banks aren’t a problem today. On the contrary, “Banks will be a big part of the solution…”
Difference 2: Emphatic Government Intervention
The second difference between the two crises is the level of government involvement.
For example, during the GFC, not only did the government allow Lehman Brothers to collapse…
But the Bush and Obama administrations only provided about $900 billion worth of stimulus in the form of increased spending and tax cuts.
That’s peanuts compared to what’s happening this time around. For example:
- The Fed slashed interest rates to near zero.
- In March, lawmakers passed a $2 trillion stimulus package.
- And a new bill is soon expected to provide an additional $3 trillion.
This level of intervention is historical.
“We’ve never seen this level of stimulus before,” said Stacy Francis.
Difference 3: This Will Be Short-Lived
The third big difference, and the most important one, is about the recovery time.
During the GFC, it took from 2007 until 2013 for the Dow to regain the value it had lost. That’s six years.
But this time around — because of the strength of the financial system, and the level of government intervention — the rebound is expected to be much, much faster.
As Isabelle Mateos y Lago, a strategist at BlackRock Investment Institute, said, unless this “temporary shock is badly mishandled,” it shouldn’t prove long lasting.
This point of view is mirrored by many leading economists…
For example, Torsten Slok, the Chief Economist of Deutsche Bank, recently said that any slowdown in earnings won’t be as bad as 2008.
Enormous Profits Are Right in Front of You
Sure, the “worst of times” might still make an appearance…
But regardless, the markets are expected to rebound into the “best of times” quickly!
And if you’re in the right place at the right time, you could earn an absolute fortune.
With that in mind, tomorrow, Wayne will explain a simple way to position yourself for the biggest profits as we rebound from today’s crisis.
So stay tuned!