Just found a great little article on the basic characteristics of financial crises by Rick Bookstaber…click here. It all seems so simple…before a crisis, Bookstaber says,
- “Equities are rising
- Volatility is low
- Credit spreads are narrow
- Correlations are low
- The opportunities are in the hinterland of low liquidity
- The yield curve is steep”
Its all true and appears so obvious. However when these market conditions appear good old emotion will stop us from getting on the Bookstaber train and it is the contrarian investor who will handle financial crises the best. Unfortunately for the contrarian…they are more likley to be wrong for a long time…but at least there’s fewer tears in the long run and they will have least one “I told you so” per decade.
I encourage everyone to read the Bookstaber blog…there are some fasinating opinions there on many other issues…gold, municipal bond market, etc