My financial advisor wasn’t too worried about the losses on my annual statement. He explained it all in very plain English. You see, the “Trump bump” of 2017 was followed by a minor “Trump slump” in 2018.... yada yada yada... investments always recover... look at this chart... and something about China.
I’ve found that they often throw in a word about China. I had a financial advisor once tell me that it was a great time to invest because all the kids in China were spoiled. All the stuff their parents were going to buy them would fuel a booming global economy. Turns out, he was bang on (hey, I don’t have a better explanation).
We have a strange way of explaining the ups and downs of the markets because, let’s be honest, no one really knows how they work. Every day we struggle to understand them by deciphering their mood.
“How are the markets doing?” I hear every morning on the radio, as though they were our children. Moody children at that. When the markets are happy, we’re happy. When they throw a tantrum, we bristle with fear.
Ten years ago, the fear was very real. For many, the stock market crash of 2008-09 was about more than just losing savings. It was a colossal banking failure that led to the foreclosure of millions of homes in the U.S., mass unemployment, and ultimately the crisis in the E.U. and Eastern Europe.
In his book, Crashed: How a Decade of Financial Crises Changed the World, Adam Tooze delves deeply into the past ten tumultuous years. Reading the chronology of events is like understanding the aftermath of a hurricane. Few things are left the same. To rebuild takes years, and some never recover.
Allow me to summarize his 600-page book in 300 words or less...
The great Wall Street rescue of 2008-09 was a heroic undertaking. After Lehmann Brothers collapsed, the U.S. government quickly realized that these giant financial dominoes were too big to fail. Government rescued the banks in an effort to avert a full-scale economic disaster.
While Tooze claims this bailout was needed, he suggests the ensuing stimulus was inadequate. While the markets began their recovery in the summer of 2009, American home prices bottomed out only in 2011, with unemployment rates at record levels for years to come. The pressure on government to reign in deficits, however, was unrelenting. After the worst economic recession in modern history, why would government need to help out ordinary people?
Across the Atlantic, certain European leaders were even less sympathetic. British Prime Minister David Cameron, who also brought us Brexit, introduced austerity budgets while Germany’s Angela Merkel refused to come to the aid of her poorer EU neighbours.
Greece paid the biggest price, with unemployment rates of young adults hitting 50% as late as 2015, and its GDP well below 2009 levels. Its EU-imposed austerity budgets were epic failures, threatening the very existence of the Eurozone.
The Great Recession left many lives scattered in its wake. Arguably, it led to the rise of far-right political parties in Europe, Brexit, and the election of Donald Trump.
It was in the midst of this economic disarray, ironic enough, that the U.S. stock market had one of its greatest bull runs in modern history. Those lucky enough to have money to invest did very well.
I should know, for I was one of them. Yes, an oft-forgotten RRSP worth a grand total of $900 lay quietly in my name in 2009. I wish I could say I’m now ready to retire.
Most of the lower middle class don’t benefit from the markets. Only half of Americans invest, with a much smaller percentage investing significant amounts.
As I recall my initial panic when I saw the losses on my annual statement, I can’t help but feel a twinge of guilt. The markets are a bit of a game, after all, that make the rich even richer.
Over the past ten years, governments of all stripes have made sure of that.
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