This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

ETFs That Are Ailing Because of Europe

Stocks in this article: KBE GUR EWG

NEW YORK ( ETF Expert) -- When subprime crisis concerns came to the fore in 2007, the U.S. had to throw all kinds of spaghetti at the wall before noodles began to stick.

For instance, the Federal Reserve first slashed interest rates. Later, in March of 2008, the Fed and JPMorgan Chase (JPM) orchestrated a buyout of Bear Stearns. In September, the Securities and Exchange Commission banned the short-selling of financial companies.

Still, nothing stuck.

The government decided to try a different path by letting Lehman Brothers go bankrupt. Was Bear Stearns too big to fail, while Lehman Brothers was not? The government had exacerbated the uncertainty.

Congress passed TARP to buy toxic assets. The only problem was the government didn't buy toxic assets but chose to purchase preferred shares of the financial institutions instead. More uncertainty.

Eventually, the Fed ushered in the era of quantitative easing which allowed for the purchase of unwanted mortgage-backed securities; eighteen bearish months passed before confidence returned.

OK, so that wasn't a top-notch historical review. Yet the point is that the smartest people in the world struggled to instill confidence in the financial system from October 2007 to March 2009. And although the sovereign debt crisis in Europe today may not represent the same set of circumstances, dismissing the similarities outright may be detrimental.

Consider the extraordinary level of volatility in the past week. Granted, computerized program trading deserves some blame. Indeed, we can even chastise the "evil" hedge fund players and the insidious short-sellers.

On the other hand, the same thing could have been said about the volatility during the 2007-2009 bear market. Was there no reality in the problems that existed at the time?

Some of the worst-performing exchange-traded funds during the 2007-2009 bear market included the SPDR KBW Bank (KBE), iShares DJ Home Construction (ITB) and iShares Russell MicroCap (IWC).

Subprime/Alt A mortgage exposure at financial companies decimated bank shares. Oversupply and negligible demand killed the homebuilders. And a deep recession rocked the smallest companies more than the larger companies, as smaller companies had even less access to credit. In other words ... it wasn't all due to market manipulation. (Even if market manipulation is 100% to blame, investors may not have the luxury of avoiding capital markets altogether.)

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,672.60 -141.38 -0.79%
S&P 500 2,051.82 -11.33 -0.55%
NASDAQ 4,757.8790 +7.4820 0.16%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs