- That which can’t last forever, won’t. A combination of lax lending standards, complex derivatives, inadequate credit rating systems, and a pervasive belief that U.S. home prices wouldn’t decline on the national level proved to be a combustible mix.
- Policymakers have learned a thing or two since the Great Depression when they pursued a series of inopportune, pro-cyclical, and inherently deflationary policies. Call it the (insert Fed Chair name of your choice)-put if you’d like. Faced in 2008 with the prospect of a vicious deflationary death spiral, our nation’s policymakers responded by injecting massive liquidity into the banking system, reinvigorating the credit markets, and engineering an economic recovery. And no, an increased money supply without significant velocity of that money is not massively inflationary and currency debasing.
- The perma-bears will always sound smarter but the bulls will get it right more often. See what the markets have done over the past nine years as the major proof point.
- Markets don’t trade on the absolutes of good and bad but rather on whether conditions are getting better or worse. By spring 2009, leading indicators of the economy were improving, the Fed Funds rate was at zero, and stocks were as cheap relative to bonds as they had been in decades. Equity markets responded in kind.
- All subsequent events, for the simple reason that they fall close to the financial crisis, are not the “big one.” It may be hard to resist echoing Redd Foxx in Sanford & Son (“I’m coming to join you, Elizabeth!”), but the doomsayers often got it wrong. Not every regional event (the Japanese earthquake), political machination (government shutdowns, fiscal cliffs), political surprise (Barack Obama in 2008, Donald Trump in 2016), double-digit market correction (2011, 2016), and debt predicament (peripheral Europe, Argentina, Venezuela, Turkey) was, or will be, 2008 reincarnated.
Even now we are asked whether student loans or auto loans or Chinese real estate will become the next version of the subprime crisis. The question fails to consider that the mortgage market in 2007 was seven times the size of either the auto loan or student loan market today, or that China is an essentially closed, command economy where the government is, in principle, the banks.
- Left to their own devices, many investors will make bad decisions at inopportune times. Investors pulled over $500 billion from global equity mutual funds and exchange-traded funds between 2009 and 2013, while investing $1 trillion in bond strategies. Although investors likely made money in their bond strategies, in our view the opportunity cost of not being in equities was large. Remember, it is not always going to be a secular bull market. Investors must make hay, as the saying goes, when the sun shines.
- To that point, have a plan and stick to it. If you had invested $100,000 in the broad U.S. equity market on the Friday before the Lehman Brothers bankruptcy, by mid-February 2009 it was worth $54,000. Ouch. If you did absolutely nothing, that original $100,000 investment would now be worth over $230,000.
- Intestinal fortitude helps. If you’d had the resolve to commit to a regular investment in those scary early days of the crisis and invested an additional $100 every other week, that $230,000 would now be $330,000.
- Don’t bet against the resiliency, creativity, and inventiveness of mankind and global businesses. It’s mind boggling to think of the omnipresent products and services that have been delivered to us in the last decade. The past 10 years have brought us autonomous cars, online streaming, tablets, augmented and virtual reality, gene editing and therapy, 3D-printed replacement organs, bionic eyes, the sharing economy, human-like robots, and countless other innovations.
- Life moves pretty fast. Pardon me for channeling my inner Ferris Bueller, but it does. Could it really be possible that 10 years have passed? Already?
Here’s to hoping that the next “big one” will be as widely spaced as the Depression and the financial crisis were, and that it won’t arrive for another 60 years. Even if it comes sooner, you may be able to withstand its long-term impact if you have a plan, stick to it, and look around for the opportunities and advances that will inevitably change our lives.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
Mutual funds and exchange traded funds are subject to market risk and volatility. Shares may gain or lose value.
The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.