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Hilary Kramer Headshot

Is This 2008 All Over Again?

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The answer is "no."

The events since the May 6 "flash crash" have brought back painful memories of the collapse of 2008 and early 2009. Many investors remained on the sidelines as the market turned upwards into its meteoric rise from March 2009 through April 2010. So, there was this double dose of hurt, disappointment and regret that made a lot of investors wait until just recently to finally dip their toes back into the water.

Then, bam, the market crushed them again.

I think it would be a mistake to maintain a "bunker mentality" because the old wounds haven't healed. I know how painful 2008 was, but 2010 is dramatically different.

In 2008, we experienced a complete loss of confidence in the banking system. The banks just stopped lending to each other. There was a flight to safety as banks hoarded their money and wouldn't engage in the common practice of interbank lending. Do you remember how we kept hearing that the LIBOR rate was rising? LIBOR is an acronym for the London Inter Bank Offered Rate, the interest rate that the most credit-worthy banks around the world charge each other for loans ranging from 24 hours to five years. Once those rates rose to record levels and rumors of a complete failure of the banking system emerged, the governments around the world weren't fast enough to prevent the meltdown and we saw the likes of Lehman brothers wither away and implode overnight.

Complete mayhem ensued. The lack of available money started a chain reaction in which investors sought liquidity wherever they could find it, and most of the time that was the world's stock markets. The whole system created a drag on our stock market that kept bringing it down to ever lower depths. As this happened, the technical trade indicators said it was time to dump shares, and it became a self-fulfilling prophecy.

Today, the central banks are on vigilant watch over the banks and making sure there is liquidity in the system. We have seen trillions of dollars pumped into the banking system and billions into our economy. Yes, our debt has ballooned and this is no small problem, but there is debt around the world and the relativity of the debt loads is more important than the stand-alone number.

And yes, there is another financial crisis in 2010, but this time it is in Europe, and I expect it to remain there. This actually makes the U.S. the most attractive destination for investment. Money will be often directed to the U.S. exchanges because of the faith and trust in the U.S. economy and our agencies to oversee the integrity of our financial structure and operations.

It is important to realize that the debt crisis in Europe is scaring many global investors that had faith in the bonds of developing European countries. I actually think the euro will probably be history within the next five years. At the very least, it will devalue down to being at par with the dollar. This development will result in more global money coming into U.S.-based companies and, of course, the U.S. markets.

In addition, the economy is in much better shape than it was in 2008. It is clear that the consumer is continuing to spend, and the word is "less bad" when it comes to looking at unemployment, corporate earnings and even the housing market, for example. We are not fully recovered by any means, but we are moving in the right direction.

Let me share one other reason why now is different from 2008 and why I believe now is the time to be buying stocks. In analyzing the last nine recessions - starting with July of 1953 -- I found that a recession persists for an average of only 10 months. (The shortest one was six months and the longest 16 months.) We've been through that, and the good news is that 10 years after the start of a recession, the S&P 500 index increased 140% on average.

The markets work cyclically, and these "crashes" and downturns have happened many times before. Bubbles are created and then they burst. The two bubbles from the last decade - the internet/telecom bubble and then the mortgage/real estate bubble - have finally deflated, and we are rebuilding our economy and productivity.

The last decade was a lost one for the stock markets as a whole, but I expect the decade we've just begun to be much better for investors. That's why I believe so strongly that now is a time to invest, not to stay out of the market, and that the game changing companies we're investing in at www.gamechangerstocks.com will create real wealth for shareholders. Two of my game changing recommendations can be found here.