Juggling Dynamite

Reaching for yield in a low rate environment has been its traditional, predictably disastrous strategy for investors over the past year. The risk-sellers have been up to their usual antics trying to move people out the risk curve trying to chase more income. Capital losses have been the reward to date, and are likely to continue for some time yet. Please understand dividend paying stocks offer no meaningful capital safety in a cyclical bear market–all stocks drop in concert. Don’t drink the Kool aid. Pass it on.

The Economist offers this insightful chart plotting the October 3, 2011 closing prices of major US financials compared with the price lows each hit in the 2008 financial crisis. The bottom line is that the financial sector is approaching the prior cycle lows and as a leading sector for the overall stock market, (euphoric bounce days aside) this suggests further downside risk for the broader markets noted at the bottom of the chart, where the S&P 500 and the MSCI World Index are so far still about 38% above their March 2009 lows.

“Bank stocks may now be approaching levels seen in the depths of the financial crisis but broader stockmarket indices still have a long way to go to reach that mark. That won’t last if the banks get into real difficulties.”  See: Financial markets: Deju vu

(Thanks Beth)