by Gary Alexander

September 14, 2021

In the last 20 years, three 21st century events have haunted us, and they all share an anniversary this week, yet 99% of our attention has been focused on the 20th anniversary of 9/11. That’s understandable for such a dramatic day, but the death toll from one other crisis is far greater than 9/11, and the financial toll from the other crisis is far worse than 9/11, yet neither crisis merited even a footnote in the press. Why not?

Well, that is my role here – bringing you the history and news you can’t find anywhere else!

September 15, 2008 – The Day the Financial World Imploded

After emergency measures failed to save Lehman Brothers on Sunday, September 14, 2009, the firm filed Chapter 11 bankruptcy papers on Monday, September 15, 2008, setting off a free-fall in the stock market.

That date marked the moment Wall Street faced the bitter reality of the real estate bubble hatched from subprime loans created over the previous decade. The Lehman bankruptcy remains the largest such filing in history, involving over $600 billion in assets. That week, banks saw massive cash and money market withdrawals, threatening major banks with imminent failure. The Dow fell 4.5% that day, the worst one-day drop since the Attack on America on 9/11, but unlike 2001, these declines continued for six months.

INDEX September 12, 2008 March 9, 2009 Six-month loss
Dow Jones Industrials 11,421.99 6,547.05 -42.7%
S&P 500 1,251.70 676.53 -46.0%
NASDAQ Composite 2,261.27 1,268.64 -43.9%
Russell 2000 720.26 343.26 -52.3%
Source: Stock Trader’s Almanac 2010

There have been several superb books (and a couple of fine movies) about the cause of the 2008 crash:

Books About the 2008 Crash Images

The best short book I have read is economist Thomas Sowell’s immediate 2009 post-mortem, “The Housing Boom and Bust.” To Sowell, and me, it was pretty clear that housing had become the ultimate crap-shoot speculation for millions of Americans, courtesy of greedy politicians (of both parties) trolling for votes. Both Presidents Clinton and G.W. Bush lowered the bar for home ownership to almost nothing.

“In 2002, the George W. Bush administration urged Congress to pass the American Dream Down Payment Act, which subsidized the down payments of prospective home buyers whose incomes were below a certain level. After the passage of that Act, the president also urged Congress to pass legislation permitting the Federal Housing Administration to begin making zero-down-payment loans at low interest rates to low-income Americans” (Sowell, p. 41-42)

2008 Crash Home Prices and Stock Market Charts Images

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Home prices started escalating rapidly in 2000 to 2005, and homeowners began to refinance in order to cash in on those higher values, like a casino ATM machine. Barney Frank, Chair of the House Committee on Financial Services, admitted that he “would like to get Fannie and Freddie more deeply into helping low-income housing and possibly moving into something that is more explicitly like a subsidy,” adding, “I want to roll the dice a little bit more in this situation toward subsidized housing” (Sowell, page 49).

Mortgage Bonds Issued Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

All this worked out fine while home prices were rising and interest rates were low, but when rates rose and prices peaked, all of a sudden the house of cards collapsed, and millions became upside-down in their mortgages. Wall Street, which manufactured kinky derivatives out of risky “tranches” of real estate mortgage loans (many rated “AAA”) saw the bids disappear and the rout was on in that fall of 2008.

From this financial crisis – much worse than 9/11 – we now turn to a death toll far worse than 9/11….

“Beware the Ides of March” 2020 – 18 Months of (Not) Flattening the Curve

March 15, 2020 – 18 months ago – is when the world began to fall apart all over again. On that Sunday night, in an emergency meeting, the Federal Reserve cut key interest rates by a full point down to zero (technically, a range of 0% to 0.25%), adding a $700 billion quantitative easing program, in hopes of lifting the market on Monday, but it didn’t work. The Dow, NASDAQ and S&P 500 all fell 12 to 13 percent, with a trading curb activated at the start of the day, for the third time in a week. The CBOE volatility index closed at 82.69, its highest-ever close – worse than the panics in 2001 or 2008. At noon, the Fed announced it would add a $500 billion repurchase that afternoon, but it didn’t halt the panic.

United States Domestic Product Growth Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

On March 19, 2020, California governor Gavin Newsome issued a stay-at-home order for all 40 million Californians. On March 20, New York and Illinois issued the same mandates, and other states followed.

On Sunday, March 22, President Trump announced an ambitious 15-day plan to “flatten the curve,” which was obviously unrealistic, but the stock market loved his optimism and rose 20% in three days.

Market Index Feb. 19, 2020 March 23 (33-day loss) March 26 (3-day gain) Sept. 10, 2021 (18-mo. gain)
S&P 500 3,394 2,192 (-35.4%) 2,637 (+20.3%) 4,459 (+103%)
Dow Industrials 29,409 18,213 (-38.1%) 22,595 (+24.1%) 34,608 (+90%)
NASDAQ 9,399 6,631 (-32.6%) 7,810 (+17.8%) 15,115 (+128%)
* 2020 prices are intraday peak or trough, rounded off; September 10, 2021 closing price; source: Yahoo Finance

Stock Prices and Unemployment Rate Charts Images

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Other big challenges remain: The labor shortage haunts every industry. Even mighty Amazon is trolling for $20-an-hour starting jobs, saying “Benefits start when you do. No experience required. No resume.”

Navellier & Associates does own Amazon (AMZN) for some clients, per client request. Gary Alexander does not own Amazon (AMZN) personally.

Here we are, 540 days into a 15-day curve-flattening: Where do we stand? As of September 8, 2021, according to the CDC, 643,858 Americans have died of COVID-related causes, of which 502,863 (78%) were 65 and over. Only 138 children of Kindergarten through 8th grades (ages 5-14) have died of COVID, and there were often other complications involved with them so we must weigh many risk factors at once.

The data are not so clear or timely yet on vaccinated Americans, but through July COVID hospitalizations or deaths are rare for vaccinated Americans, so healthy, vaccinated workers or students must ask if they are willing to defy the nanny state and face ultra-low chances of death by driving a car, flying in an airliner, eating a second donut, swimming in potentially shark-infested waters, running a 5k race, facing winter flu season, shoveling snow off a sidewalk, or hearing too many news reports that raise your blood pressure. Life is filled with risks, and we need to rationally weigh them all and not over-react to just one.

Bottom line, we took three major body blows this century and we recovered within six months each time.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
This Could Be “The Big One”

Sector Spotlight by Jason Bodner
Why 9/11 is Personal to Me

View Full Archive
Read Past Issues Here

About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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