In the midst of World War II, a woman told Winston Churchill that the best thing he had done was to give people courage. He replied, “I never gave them courage. I was able to focus theirs.”
During highly stressful times such as the current moment, it is only natural to think back on all aspects of one’s life including, in my case, a forty-five-year career in investments. There are not many benefits of aging (particularly when you are in the high risk group for Coronavirus), but there may be a silver lining in that you should have gained a shred of wisdom and perspective through experience. I won’t chronicle all of the wonderful things that have occurred during my financial career, but will instead focus on the threats and challenges because they seem particularly relevant in this moment. While I have undoubtedly missed some, here is a chronological list of crises that I have experienced:
- 1976-81 Inflation averages 9.1%. Inflation of this magnitude resulted in the inflation adjusted value of many assets declining by 44% over this six-year period.
- 1979 Revolution in Iran, Oil Crisis. During this crisis, the price of oil doubled contributing to a brief recession in the first half of 1980. The Iranian hostage crisis brought the U.S. and Iran close to war.
- 1981 10 Year US Treasury Yield 15.3%. Borrowing costs of this magnitude contributed to the recession of 1981-82.
- 1987 October 19th Market Crash. The S&P 500 fell 22.5% during a single day.
- 1990-91 Gulf War. This war contributed to a brief recession in 1991 and raised significant concerns regarding the continued flow of oil from the Middle East. The U.S. stock market declined by 11% during the first through third quarters of 1990.
- 1994 Mexican Financial Crisis. Fear of a global financial contagion motivated the U.S. to coordinate a $50 billion bailout.
- 1997 Asian Financial Crisis. Once again, fear of a global financial meltdown necessitated a $40 billion bailout by the IMF.
- 1992-1998 Conflicts in the Balkans. This series of conflicts lead to NATO airstrikes in 1995 and again in 1998.
- 1998 $126 billion Hedge Fund Long Term Capital Management necessitated a bailout by the Federal Reserve. This crisis resulted from a currency devaluation by Russia as well as unprecedented volatility in other markets. This potential failure threatened a global financial meltdown because of the Fund’s relationships with a large number of banks and institutional investors. The S&P 500 fell by 10% during the third quarter of 1998.
- 2000-02 Tech Bubble popped. Real GDP declined for several quarters in 2001. More important, the S&P 500 declined by about 43% and the NASDAQ 78%.
- 2001 September 11. The stock market was closed until Sept. 17 and in the week following its reopening, the S&P 500 fell more than 14%. There were valid concerns that many industries such as airlines, hotels, and cruise ships would never recover and that the lower section of New York City would be permanently deserted.
- 2003 Gulf War-Iraqi Freedom. The war had little effect on the U.S. capital markets and economy but raised significant fear of a more global conflict.
- 2007-09 Global Financial Crisis. The crisis led to a 4% contraction in the U.S. economy and only Herculean intervention on the part of the U.S. Government and the Federal Reserve prevented a catastrophic depression. Despite their efforts, there were many bankruptcies and a number of major financial institutions required bailouts and restructuring. Moreover, the unemployment rate peaked at 10% and the S&P 500 declined by 46% from peak to trough.
- 2001-2020 Continuous Middle East Conflicts with the Taliban, Al-Qaeda, etc.
- 2020 Coronavirus crisis. S&P 500 declines 27% (subject to minute-to-minute change) The U.S. Government just passed a $2 trillion stimulus package and the FED has promised unlimited asset purchases. Similar efforts are being undertaken by many governments around the world. But, even so, there will likely be significant economic damage which will compound the human tragedy of the disease itself.
For people who are focused on politics, this forty-five-year period has consisted of five Democratic and seven Republican presidential terms
The bottom line is that my career could be described as “having seen it all.” In reading the information included in these bullet points, you will note a tremendous number of similarities to today’s headlines. Just to name a few, they included significant stock market declines, recession, fears of global financial contagion, the necessity for government bailouts, widespread bankruptcies, destruction of certain industries, and unemployment. Yet, despite all of the wars, financial crises, market crashes, and so on, the two major investment categories have delivered the following annualized returns over this forty-five-year period: (through 3/25/20)
What is different this time is the threat to the health and safety of a large part of the world’s population. These are incredibly trying and scary times. But, at least from a financial standpoint, you should try to look past the dark clouds and focus your courage.