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The market a year ago and today

Marketplace Staff Mar 12, 2010

The market a year ago and today

Marketplace Staff Mar 12, 2010


Tess Vigeland: March 9, 2009. It may not be one of those “where you were when” days, but it did mark a milestone in the financial crisis — when the Dow Industrials hit bottom at 65-47. Dow’s Total Market Index had dropped more than 50 percent from the highs of October 2007, and investors had no idea how long a recovery might take. They certainly — at least most of them — never thought the bounce back would be this fast.

For some perspective on the year since, we’re joined by Jim Jubak. He writes the Jubak’s Journal column at MSN.com. Welcome back to the show.

Jim Jubak: Thank you. Glad to be here.

Vigeland: Well, OK, not to belabor history, but let’s belabor history. Set the scene for us of one year ago, last Tuesday.

Jubak: Well, one year ago, last Tuesday, we started to believe maybe the world was not going to come to an end. I think that’s the easiest way to describe it. After watching Lehman brothers go under and watching all the banks struggle, after watching the government pay us a huge bailout bill and reading things that said, “Hey, this is the Great Depression II,” we finally realized that it wasn’t. And the market started to rally, and no one believed it at that point. I mean, it was just going to be another one of those rallies that peter out in bear markets. And it was very hard to say at that point that this was the bottom, but it turned out that it was.

Vigeland: And now, here we are, the market, at least the Dow Jones Industrial Average is up 70 percent from the bottom. Did you see this coming in your crystal ball? Did anybody?

Jubak: There are people who did. I mean, you know, there are so many people calling the market that somebody has to get it. You know, from my point of view, no, I didn’t. I’ve been skeptical about this rally all the way up. On my on-line portfolio at Jubak’s Picks, you know, we never got more than about 60 or 70 percent invested in 2009. So we went up with the rally, but we didn’t get all of it.

Vigeland: Well, you say you’ve been skeptical and there are, of course, doubting Thomases out there, who say there’s another market dive coming — the so-called “double dip.” Why are some investors not trusting that this rally is real, a year in?

Jubak: Well, you know, you have to put this in larger history. We need to go back to 2000. Remember that this is really the second huge bear market that we’ve had within the memory of most recent investors. And what they feel is “gee, if it happened before, it can happen again.”

Vigeland: Which is true.

Jubak: Yeah, exactly true. And a lot of people didn’t believe that really we were in a recovery after the last one, and they got in relatively late. Bear markets are so vicious, because people tend to buy high, because they’re skeptical that the rally is real, and then get frightened and sell low. So I think that’s what happened to a lot of people, and I think that’s why people remain skeptical about this one.

Vigeland: How much of a factor do you think is the economy writ large, which is not recovering nearly as fast as the market did?

Jubak: Well, I think it’s immensely important. You’ve still got 10 percent unemployment, you’ve got a tough time for a lot of businesses, they can’t get banks to lend to them, so they’re not seeing it. If you look at market history, we’ve been through this a number of times. A 70 percent rally seems extraordinary, but it’s really not extraordinary. The problem is that what we don’t know, whether this is simply a rally inside a continuing bear market or whether this indeed marks the end of the bear. And what we’re looking at right now, is we need some kind of confirmation from the economy, that the rally is based on a belief — maybe the first half of it was just relief that the world wasn’t coming to an end. The second half of it, going forward from here, is based on a belief that the economy is really going to recover and you’d be hard pressed to go out there and say, “Oh, that’s certain right now.” So that’s why people are skeptical.

Vigeland: Let’s talk about the people who panicked, as the market was tanking, just decided “You know what, I’m done. I don’t want to go through this ever again. And no more stocks, ever, for me.”

Jubak: I think there are a lot of those folks. I think it’s perfectly understandable; it’s even defensible. You don’t have to be in stocks, there are lots of ways to skin cats. So my question is, OK, so if you’re not going to be in stocks, because you’ve decided that you can’t take this anymore — and I’m a firm believer in trying to find things that let you sleep at night — what do you do instead?

So, you know, the question is, if you’re afraid of stocks, are you afraid because it says S-T-O-C-K-S? Or are you afraid of risk? If I said, “Well, you can buy shares of a mutual fund or an ETF, an exchange-traded fund that’s invested in the debt of emerging markets, which strikes me as a good place to be, instead of the stock market — that too scary for you?” You need to actually do a little sort of digging around in your own psyche and figure out, well, what scares me and what am I willing to do and what can’t I do here.

Vigeland: Jim Jubak, thanks so much for coming in and reviewing the last year for us. Appreciate it.

Jubak: Always my pleasure.

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