8 Most Shocking Market Events from 2008

Looking back at a rather abysmal year for investors and employees alike, there were some other shocking events from 2008 that have already fallen from the forefront.  Below is a list of the most surprising, shocking, unanticipated developments from 2008.

1. Stock Market Crash of 2008 – This one stands out most prominently.  Investors globally suffered through a treacherous year, ultimately losing close to half their investments in major market indices.  Oddly, while the real estate crisis erupted from the US and we were the source of the derivatives that proved to be so vexing, the US indices fared better than virtually all major market indices for the year (see 2008 returns by country ETF).
2. Madoff Investors lose Billions– In a shocking twist, the former head of the Nasdaq, who was a respected community leader, philanthropist and investor appears to have defrauded investors to the tune of $50 Billion in the biggest Ponzi scheme in history.  To add insult to injury, investors who withdrew money ahead of the scandal will likely be forced to cough up their proceeds via “fraudulent conveyance” clause.  This may have implications for 2009 as skittish hedge fund investors rush for the exit with redemptions, forcing hedge funds to further liquidate already depressed holdings.
3. Bailout Bonanza – The US government convinced Congress and the President to agree to a bailout of the financial sector with virtually no transparency and massive power.  The claim was that without this bailout, the Dow could drop thousands of points from its current levels.  Within weeks after the passage of the TARP bill, the Dow was down thousands of points anyway.  To date, even the oversight board overseeing disbursement of funds for the TARP has no idea where the funds are going, which banks have participated and to what degree.
4. Auto Bailout– The government extended what was meant to be a bridge loan to the auto industry to further what seems to be an unsustainable business model.  While the Billions loaned to the industry at the tail end of the year may hold the US autos over until spring, it is likely that they will be back for more.  Inaction could have furthered job losses significantly given the interconnectivity of the domestic suppliers to the broader US economy.  Pundits and politicians alike appeared to be most fixated on whether the CEOs were flying their corporate jets or driving company cars to the hearings.
5. Treasuries actually went negative – In an unprecedented chain of events, short term Treasuries actually had a negative yield for investors, reflecting the extreme fear that existed in the market.  Uncertainty of investors ever seeing their money again ran so high that they were willing to take a loss on their money just to know that it would be available in 3 months.
6. Real Estate Bust– In another unprecedented series of events, after the most rapid run on real estate the country had ever seen during the prior decade due to loose lending standards and low interest rates, the US real estate market crashed hard, especially in Florida, California, Nevada and Arizona, dragging the global economy down with it.  Due the the collateralized debt obligations and other exotic investment vehicles conjured up by mortgage underwriters and banks, the world become more closely linked than we thought and the US ended up exporting untold Billions of dollars of toxic assets abroad.  By year end, the widely utilized Case-Shiller index showed an 18% decline in year over year prices for major metro markets.  Will the homebuilding industry be in line for the next bailout?  Likely.
7. Triple Digit Oil Prices– Driven by everything from global demand and Nigerian hostage scenarios to speculation, oil surged to close to $150 per barrel, putting it on par with the inflation adjusted level from prior decades that resulted in mile long gas lines and rationing.  This time around, free markets were allowed to work and no cap was put on US gas prices.  As a result of US declining demand and delevering of hedge funds and speculators alike, oil prices plummetted back to the 30’s.  Perhaps overdone, a signficant contango occurred resulting in higher forward spot prices, which culminated in double digit runs on oil right at the end of the year.
8. A Run on Commodities – The demand for commodities became so frenzied throughout the year, that the practice of stealing copper pipe became commonplace and there were even runs on rice at US megastores, which required rationing.  Mexicans protested over high prices for tortillas.  Like all bubbles, the non-oil commodity bubble burst as well.

Who knows what’s in store for 2009?  I anticipate no meaningful recovery in housing, a gradual increase in oil prices, a choppy market that won’t break prior highs during 2009 and serious global events that challenge our new administration (note the head start

Did I miss any signficant events in the “Top 8” List?

Tagged as: 2008, Market Commentary