Looking back on the last ten years, it seems there may have been a geo-political or economic event to mark each year. From an economist’s standpoint, the decade from 2000 to 2009 is painted with a string of investment bubbles. From an advisory standpoint, I can recall with much clarity the impact that these events had on client relationships. Let’s take a quick look at each year’s main event.
- 2000--Dotcom bust…Get-rich-quick stock bubble bursts. This had a profound effect on California’s economy (particularly the Bay Area), as a large part of the workforce were sent away from jobs that would not return in the same industry sector.
- 2001--9/11…When stock markets reopened on Wall Street after the 9/11 hiatus, the Dow (DJIA) dropped 685 points. A very scary time in America, resulted in a short-term over-reaction on equity markets. Over the long-term, the 9/11 sell-off had close to zero effect on the economy.
- 2002--Accounting Scandals…As detrimental as the Enron & Arthur Anderson (& others) scandal were to the US economy, the legislative response of Sarbanes Oxley certainly has had unintended consequences. While holding executives to a higher standard is a fine idea, this piece of legislation has allowed places like London and Hong Kong to creep closer to NY as the preeminent location for global finance.
- 2003--Iraq War begins…No matter how any of us feel politically about war, the fact remains that it has been costly.
- 2004--President Bush Re-elected…Again, no matter how any of us feel politically, re-election meant staying the course for the US both internationally and domestically.
- 2005--Significant Oil Price Increases…Not sure if oil shocks in 2005 can be described as a bubble, but certainly provided a mixed year for equity markets, with the S&P 500 index creeping up only 3%. Certainly those industries dependent on oil continued to be hurt by prices.
- 2006--Dow Reaches 12,000…Big movement for equity markets in 2006 with the Dow Jones Industrial Average reaching new highs. Additionally, the Democratic Party seized control of Congress in the 2006 mid-term elections.
- 2007--Sub-prime mortgage crisis…First thought to be the only “problem area” for the mortgage business we soon quickly and painfully learned that securitization of those loans meant that no investor knew who was holding the proverbial bag (of bad debt). 2007 also marked the official start of recession.
- 2008--Global Financial Crisis…Markets bounced around quite a bit throughout 2008, but it was not until Lehman Brothers bankruptcy on September 14th that the systemic financial problems were truly revealed. AIG’s would soon follow, and before we knew it, we all became majority shareholders in the insurance giant.
- 2009--The Great Recession…It bears noting just how bad 2008 was: 8of 500 companies on the S&P 500 index posted positive returns and it was only the 5th time in history stocks and bonds had losing years simultaneously. Policymakers have walked a pretty impressive tightrope in 2009. I believe the S&P 500’s “roar-back” in 2009 came from a negative overreaction in late 2008. Real planning and strategy will begin to play a larger part in the process as we move in to 2010 and beyond.
