Better Times Ahead as Debt Fears Fade

10/17/2011 2:30 pm EST

Focus: MARKETS

Jon Markman

Editor, Trader's Advantage

The sovereign debt crisis will resolve less painfully than the subprime fiasco, says Jon Markman, founder of Markman Capital Insight, in this exclusive interview with MoneyShow.com.

I recall distinctly in the summer of 2008 how bearish you were, and then when we did a profile of former bears turning bullish…you were sure enough bullish at just the right time in 2009. What was different then, and how do you see things today?

When people look back at 2008, they remember the severe decline of the latter part of the year. But they forget that in the summer of 2008, the S&P was only down about 7% to 10%.

But I gave an incredibly bearish presentation, the one that you remember, because I was looking across at Europe and across at Asia and I saw that all the other markets in the world were teetering over into a bear market: France, Germany, the British market, Chinese market, the Malaysian market. Everyone was going down by 20% or 30% already, whereas in the United States were only down about 5% to 10% and we were thinking it was just a correction.

I said the United States would follow the rest of the world, and it did, and we know now why that is. The reason was that the United States had created the subprime debt market, causing a bubble, then packaged these subprime mortgages into bonds that were hard to understand and sold them around the world.

As those bonds blew up around the world, those other markets crashed. The United States was still OK, but it was only after all the people that we had lent to or were lending to us started to decline, did the United States start to fall over…and then of course in September, October, and November was the exciting part of the bear market, where the values just completely washed out.

Now, today is different, because today it’s not about private mortgages that are not being paid back. Today, it’s all about sovereign debt. That was private and now it’s public.

The other difference is that before it was private debt that was hard to understand, and it took years to uncover or figure out what collateralized loan obligations were all about and who owned what, etcetera. Whereas today, we kind of know all the public debt. The debt that we’re all concerned about is public. It’s very well collateralized and it is owned by only the largest banks.

So, here we had something that was hard to understand and private…and now we have something that’s pretty easy to understand and public. And I think it’s going to be much easier to solve this public debt problem than it was to solve that private debt problem.

So that implies you expect it to get done a lot faster?

I expect the low period that we’re in to extend possibly into October, maybe into the fourth quarter, but I do expect it to start moving higher, and I think next year we’ll see a pretty good market.

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