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2008 is more than at final. It has been an exceptionally turbulent year and everyone's swept below its currents such that it was tough to see what essentially occurred, so, here's a recap of what occurred in the stock marketplace in 2008.

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Summing up, the Dow lost a total of 4488 points this year, down 33.84%. The Nasdaq composite lost a total of 1075 points, down 40.54%. The S&P500 lost a total of 565 points, down 38.49%. The more volatile Nasdaq Composite became the loss leader this year just as it is expected to be the gain leader in a rising industry, so, no surprise there. Both the Nasdaq Composite and the S&P500 went lower than the low of the final crisis in 2002. Only the Dow managed to stay above the last crisis level marginally. I had expected it to also make a lower low but it did not.



How did it all begin? Indications of this 2008 market crash essentially started showing up as early as July of 2007 when short term bond yields begun yielding higher than long term bond yields in a bond yield curve that is almost perfectly horizontal above the 4% yield line. Such a bond yield curve indicates excessive optimism inside the capital marketplace as the 20yr bond hit an all time low price (relative to recent years). Bond prices go down when demand for bonds goes down. Demand for bonds goes down when capital gets reallocated, usually into the equities market place (for simplification sake), resulting in high bond yields.

At that time, the Dow was trading well above the 13000 points level, just one step from the 14000 level resistance which marked the beginning of the 2008 market crash. At the same time, foreclosure rates had been and continued to rise nation wide, putting pressure on the value of the most complex derivative instrument ever created amongst investment bankers, CDOs or Collateralized debt obligations.

All 3 major indices hit their peak in October of 2007 and begun their long retreat. The retreat didn't look at all menacing for a start as all 3 major indices backed down to their respective short term support levels and even rebounded slightly, making it all look like a classical pullback in a strong primary bull trend. At that time, the Fed's still all confused with what to handle, inflation or growth, and talks of Stagflation begun showing up as real GDP went sideways in Q3 2007 and then retreated in Q4 2007.

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This was when 2 groups of economists; Recession Talkers and Goldilocks, begun their battle of tongues over the major wires. Of course, now we know who knew better. Sensing danger, investors begun taking positions in bonds once again, bringing bond yields down from their previous highs. The Fed also begun taking Fed Fund Rate down from its high of more than 5% in August gradually (too gradually, argued by some economists). At this time, a perfect storm is brewing as the more the Feds cut rates, the lower the dollar goes and the higher commodities prices went (as well as prices at the pump of course), putting further pressure on the real economy.