January 27, 2016

2016 market not comparable to 2008 panic sell off

It seems to me that Wall Street's 2008 panic was driven in part by a vicious cycle in the Markit index, a small proxy derivative that supposedly correlated to mortgage bonds and their expected cash flows.

I believe that driving the price of this small "cog" down caused the markets to mark to the index. This is the tool that I think was used to short Lehman Brothers into oblivion, with horrible results.

Sure, if Lehman wasn't 30x leveraged, that never could have happened. And in the end, many of the bond classes performed way better than the indices expected. One particular example of that was collateralized mortgage-backed securities.

Fast forward to 2016 and I think oil is the proxy of choice today.
It's obviously not a housing proxy, but there are more oil consumers, more manufacturers who use petroleum as an input and more jobs created as a result of crude than there are oil producers.

This isn't a dead-weight loss -- so the comparison that many are now making between the Wall Street of 2016 and the Wall Street of 2008 isn't accurate in my view.