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Saturday, 29 May 2010

Altucher: "Relax," We've Been Through Much Worse Than This

Europe’s sovereign debt crisis has wrecked havoc on the markets in the last few months. We’ve had a spike in the VIX, aka the fear index, the flash crash and many global markets are now back in bear market territory. In the U.S. were on track for the worst May in half a century.

The wild market action has many investors wondering: How will we get out of this mess?

"Everybody needs to just relax a little bit," says James Altucher, president of Formula Capital. "This is not Argentina, this is not Zimbabwe."

The market has been through much worse than this in the past 30 years and Altucher believes the economy and stocks will remain resilient.

When has it been worse?

* --In 1982-83 Brazil, Mexico, Venezuela and most of Latin America all defaulted or, came close to defaulting. "The whole world was going bankrupt and we were coming out of the Volcker led recession from the early '80s where he was fighting inflation," he notes. Guess what? After a bailout – U.S. markets were up 49% those two years.
* -- 1987’s Black Monday. Think the 'flash crash' was frightening? On October 19th, 1987, the Dow fell 22%. In a single day! Hong Kong markets fell 45% on that day, alone.
* --1997’s Asian financial crisis lead to Russia debt default in the following year and the collapse of hedge fund Long Term Capital Management. Talk about contagion.
* -- September 11th, 2001. "It seemed like the world was ending, it was the scariest thing that happened to me, at least, in my lifetime, and it was horrible for the country," Altucher recalls. "And, we were in the middle of a recession."

Bailouts and quantitative easing followed most of these previous crises. But our current predicament comes after we've already had the biggest bailout in history and rates can't go lower. Altucher has a retort to that concern too, noting half the stimulus package hasn't been spent yet. In fact, he's more concerned that using the rest of the funds will create another bubble and lead to higher inflation.

That's a problem the Fed might look forward to.

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