2009/01/08

The Aftermath of Financial Crises - Are we there yet?


Interesting little history: "The Aftermath of Financial Crises"

http://ws1.ad.economics.harvard.edu/faculty/rogoff/files/Aftermath.pdf

All the major postwar banking crises in the developed world, the average Real House Peak-to-trough Price Declines and Years Duration of Downturn were -35.5% and 6 years. So far in U.S. (Ongoing) we are looking at -28% and 1.5 year duration. The price decline is already more than twice that was in the U.S. during the Great Depression.

Equity on average dropped -55.9% with a shorter duration of 3.5 years of downturn cycle.

Similar to the S&P 500 Historical P/E chart, the percentage of asset price decline and other economic factors during the banking crises also suggest that we still have obstacles ahead. However, I do believe we have experience the worse, and it's time for a little sense of optimism. Stock market usually starts to climb up before the real estate and unemployment recovery. I don't believe a V-shaped bounce would occur, instead it will be a slow yet steady recovering.

Now it's the time to put dollar-cost-averaging into practice (you buy a set amount of dollar or shares within a duration). More importantly, use this strategy on companies that will come out as strong survivors. It's time to look at your investment statement and do a physical check-ups.

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