I continue to be amazed by how closely the S&P 500 is tracking the 2008 GFC in terms of price and volatility. However, the underlying cause of 2008 versus today is different in a significant way and it has to do with "reversibility".

In 2008, the cause of the crisis was the inability of house buyers to pay their mortgages due to lousy lending practices accumulated over the years. It is impossible to reverse the situation overnight where home buyers suddenly can pay up. In many cases, the buyers would not have been able to buy the house in the first place, based on strict lending standards.

The cause of today's crisis is inflation but more directly is the Fed's QT and rate hikes to fight inflation. It is entirely possible to imagine a scenario where CPI suddenly comes down more than expected and the Fed does a pivot. I am not saying this is the most likely scenario but it is not impossible.

Hence, although 2022 is a year where if you just throw a dart at any security and short, you probably would have made money, it nevertheless is a more risky proposition than back in 2008 because everything hinges on the Fed. Don't fight the Fed but also know that the Fed can change its tune overnight.

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