TSP Market Crash Analysis 2008

The financial markets generally are unpredictable. So that one has to have different scenarios… The idea that you can actually predict what’s going to happen contradicts my way of looking at the market. ~ George Soros

The best way to predict the future, is to study the past. ~ Robert Kiyosaki

We know the last thing you want to hear from a financial newsletter is the phrase “I don’t know.” It’s counter intuitive by virtually all other measures. Most people believe they are paying financial advisors and firms to “predict the market” when in actuality they are paying them to manage their money. While we don’t manage any of your funds, we have said from day one it is impossible to predict the market. We even said it here in our analysis for the stock market crash in 2000 which led to TSP Funds and portfolios being slashed in half! Instead it makes far more sense to study past situations to ensure you do not make the same mistake when faced with the same circumstance.

This Is Why The Market Crashed In 2008

TSP Market CrashThe 2008 crash at its core stemmed from the subprime mortgage industry.

Banks targeted less than stellar mortgage applicants in order to make home loans more accessible to individuals with lower credit and savings than typically required. The goal was to make home ownership “The American Dream” obtainable to everyone. In order for banks to mitigate risk they issued unconventional loans that held higher interest rates and variable payments. A good example would be ARMs.

Fannie Mae & Freddie Mac, both of which are government sponsored, started purchasing these high risk loans from the originating banks with the intent to make money once they were successfully paid off. However, instead of these loans being paid in full they started to fall into default which led to huge balance sheet losses for these two companies.

Additionally, the subprime mortgage industry produced other derivatives known as Mortgage Backed Securities (MBS) and Credit Default Swaps (CDS). If you have the time I highly recommend educating yourself on these two vehicles, it doesn’t have to be in depth but I believe the knowledge will be invaluable to you moving forward. In the meantime all you need to know is these two derivatives allowed investors and insurance companies to invest in this subprime debacle. It made perfect sense while housing prices were rising but problems arose when housing prices started to plummet.

Major Timeline Of Events In 2008 Crash

Below is a major timeline of the events in the 2008 crash coupled with a chart that has our flagship indicator.

  • Apr 2015 - 2008 Crash Analysis 4March 2008 – Bear Stearns fails and the iconic investment bank was offered $2/share for their company
  • Sep 7, 2008 – The government takes over Fannie Mae & Freddie Mac due to their heavy losses from the subprime mortgage industry.
  • Sep 15, 2008 – The Lehman Brothers filed for bankruptcy (largest bankruptcy filing in U.S. history) and the DOW dropped 500 points.
  • Oct 3, 2008 – $700 Billion dollar bailout is approved
  • November 2008 – AIG and the big 3 automakers asked for bailouts
  • December 2008 – Federal Reserve dropped the Fed Funds rate to 0%, its lowest level in history

Is there anything in particular you notice about the chart above? Take a look at all the negative financial information that unfolded and notice how it all occurred after our indicator had us out of the market. Yes things started unfolding beforehand but the whole world didn’t start paying attention until it was far too late. Your average “mom & pop” investors didn’t start panicking until major investment banks started going under. That’s the beauty of our indicator. Most people believe you have to be on top of every single job report, Federal Reserve announcement, etc in order to make sound financial decisions regarding the stock market. We’re here to tell you that is not the case at all.

With technical analysis you have the luxury of cutting out all of the financial noise otherwise known as constant news regarding the market. The truth is most fundamental information gets priced into the market fairly quickly. A successful, proven, and easily understandable system is far more valuable than the plethora of financial news at our fingertips. Most people would think the more information available to investors the better but that is not true at all. Unfortunately, what happens when an investor is inundated with so much information is they suffer from what we call “analysis paralysis.” Investors analyze every single piece of information they take in, then get inundated with another wave of information they need to analyze, and before they know it they’re in this vicious cycle and never get around to making a decision.

This is why we started the TSP Newsletter, to cut out all the noise you are inundated with on a consistent basis. We want to give you the knowledge and confidence to make sound financial decisions in order to grow your TSP portfolio significantly.

Lead Up To The Crash In Your TSP Portfolio

From bottom to top the bull market accrued an impressive 95% gain!

Apr 2015 - 2008 Crash Analysis 2

During the bull market from early 2003 to 2008 there were 7 notable corrections to the bullish trend. Each correction ranged between approximately 5-8% before climbing higher, take a look below.

Apr 2015 - 2008 Crash Analysis 1

You have to remember all trends both bullish and bearish have to take a breather. It’s impossible to sprint nonstop without stopping to catch your breath, the same theory holds true for the market. So the next time you see a one day drop that seems significant keep the big picture in mind.

However, every bull market must come to an end.

Apr 2015 - 2008 Crash Analysis 3

This is how our indicator performed during the bull market. It was able to capture a 54% gain of the bullish trend not the full 95%. Some may view this as a failure but you have to remember trying to predict bottoms and tops is futile. You will never consistently identify the tops and bottoms of any market.

Furthermore, you have to understand this system’s bread & butter doesn’t come during bull markets. The proverbial “moment of truth” comes during bear markets. Remember it’s not how much you can make, it’s how much you can keep. As you can see, our indicator signaled for us to get out of market with an 11% loss from the bullish peak. This saved us from the catastrophic loss of 52%

Let Us Give You A Real Life Example:

  • John’s TSP Portfolio = $50,000
  • 2003-2008 Bull Market w/ TSP Newsletter (Conservative) = $27,000 Gain
  • John’s TSP Portfolio (Out of the Market) = $77,000
  • John’s TSP Newsletter Expenses = $597

So in theory John spent $597 over the course of 5 years, gained all sorts of insight and knowledge, then produced a $27,000 gain at the end. I think we can all agree that’s a good deal by any measure. Now let’s look at another example:

  • Sam’s TSP Portfolio = $50,000
  • 2003-2008 Market w/ “Buy & Hold” Method = $5,500 Loss
  • Sam’s TSP Newsletter Expenses = $0

If you are reading this newsletter, then chances are I’m preaching to the choir. However, I needed to reiterate that the days of buy and hold are gone. I hope I have provided enough information throughout this service to prove that.

Getting Your TSP Portfolio Back On Track

The market crash that ensued in 2008 took about 14 months to unfold before our indicator put us back into the market. During that time frame news outlets bombarded America with doom and gloom scenarios. From what I can recall “The entire financial system was on the brink of collapse.” Some investors took their money and ran for the hills while others sat paralyzed as they saw their nest eggs take a 50% haircut. When you’re in the middle of any bear market it’s very hard to imagine that one day things will get better but there is a light at the end of every tunnel.

With that being said, you have to remember that this all took over a year to unravel. If you were subscribed to the TSP Allocation Guide & Newsletter then you would have received 12 newsletters over that time frame ultimately telling you to stay out of the market. As I stated before, patience in the market is hard for a lot of people and that’s why we strive to provide an abundance of education in our newsletters. This will help you build the confidence to stay in the market when its beneficial and exit the market when it’s necessary.

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