Global Financial Crisis - 10 Years Later

October 22, 2018

As many of you will recall, September of 2008 was one of the scariest months in stock market history.  On September 12, 2008, the S&P 500 closed at 1,251.70, down just over 20% from its all time high the previous October.  

On Sunday night, September 14, 2008, Lehman Brothers filed what was and still is the largest bankruptcy in U.S. history.  It was earth shaking!  The 150-year-old investment bank and brokerage house had failed with $600 billion in assets.  On the following Monday, the S&P 500 fell another 4.5%.  The very next day, the massive global insurance company AIG failed and was bailed out by the federal government.  

In a matter of a few days, the global credit market virtually ceased to function.  The resulting Great Recession was the longest since the end of World War II and the U.S. unemployment rate peaked at around 10%.  When the equity market bottomed in March of 2009, the S&P 500 was down 57% from its high in October of 2007.  The media portrayed it as the end of economic life on the planet as we’ve known it.  And most investors felt that way.

As long-term, goal-focused investors, let’s mark this 10-year anniversary by taking a good look at the world today.  The Federal Reserve reports that household net worth is 50% higher than its pre-recession peak.  Household debt as a percentage of assets has fallen to a 30-year low and is well below what it was going into the crisis.  Unemployment has fallen from 10% to just under 4%, the lowest rate in the last 49 years.  Minority unemployment is as low as it’s ever been.

Propelled by record earnings, the S&P 500 broke new high ground in early 2013 and today, it closed at 2,755.88, over three and a half times its value at the bottom in March of 2009!  The world, which was supposed to end just over 10 years ago, didn’t!  Virtually all major metrics of economic activity and household wealth are at all time highs.

According to the great investor John Templeton, the four most dangerous words in investing are, “this time it’s different.”  That’s certainly what everybody thought 10 years ago.  This time wasn’t different and there’s a reinforcing message in there for all long-term investors!

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