Sometimes you have to wonder whether prominent government officials are brain dead or something. Bart van Ark, chief economist at the Conference Board, just stated one of the most obvious statements and the fact that the Chief economist of the Conference Board is only now realizing the 2008/9 recession was not just a cyclical run of the mill slowdown is frightening. Per the quote: “Everybody’s just incredibly cautious because we are beginning to realize this was one of the worst recessions and not just a cyclical thing.” We could have told him that almost two years ago!
Maybe we should follow the lead of Iceland. The country set up an independent board to review the government’s behavior and found the president and others criminally negligent for not having regulated their wayward banks better. Maybe the best course of action to have real reform is to throw the bums in jail when the system fails rather than give everyone cushy retirement packages at taxpayer’s expense or consulting jobs also at taxpayer’s expense.
With Bart Van Ark stating that he is beginning to realize the slowdown is more than a cyclical thing and the Icelanders trying their former leader for criminal negligence concerning their bank failure, you would have thought that September must have been one of the worst months for the stock market on record. Investors entered the month of September fearful of past downturns, still haunted by the catastrophic decline in 2008 and with many media outlets reminding investors that September is often a worse month than October for investors. But yet again, the markets performed the opposite of what many were expecting, posting the highest returns for the month since 1939, and the third best single monthly return in 10 years, according to the Associated Press.
It’s helpful to remember that at the start of the quarter, people were questioning the viability of U.S. and global markets after the near-meltdown of Greece, Portugal, Spain and other Southern European economies. Each quarter, each year, seems to bring a new thing to worry about. But looking longer term, the U.S. equities markets have managed to post long-term gains despite some fairly serious disruptions, including World War II, the Cold War, the conflict in Vietnam, stagflation and the oil shocks of the 1970s, the market crash of 1987, the bursting of the tech stock bubble, and the subprime mortgage meltdown and collapse of Bear Stearns, Lehman Brothers and AIG in 2008.
Indeed, if you look at the long-term movements in the stock market since the Great Depression, all of those events, which seemed pretty dire at the time, look like blips on the screen, small dips in the long-term growth of value in American and global publicly-traded enterprises.
There is no doubt that there will be other events in the future which will seem to endanger–or at least derail–the long-term growth of capitalism. But based on the history of the past two centuries, one might feel confident that whatever challenges await us, people in all sectors of the U.S. economy will find ways to build additional value.
The final three months of the year may bring the market indices back up to pre-meltdown levels, or they may disappoint. We simply cannot predict the short-term movements in stock prices. Despite all of our attention on protecting client portfolios, and the complex work of identifying risks and opportunities, the primary focus is still on a long-term bet that risk assets will be up more often than they are down, regardless of what dire thing you will read in the paper between now and the end of the year.
