It’s 10 Years Gone for the Financial Crisis … Remember That?

Does anybody remember laughter?

That’s the question Robert Plant of Led Zeppelin (one of my favorite rock bands) asked during the live recording of their classic, “Stairway to Heaven.”

That ad-libbed lyric popped into my head when I read an article this week in the Wall Street Journal titled, “It’s Like the Financial Crisis Never Happened.

That piece reminded me that it’s been “10 Years Gone” (another Led Zeppelin song reference) since the beginning of what is the seminal event in markets in the still-young 21st century.

Yet despite the infamous anniversary of what then seemed like the beginning of financial Armageddon, the market today shrugged off that memory like an Ayn Rand hero shrugs off societal responsibility.

Here’s how writer James Mackintosh puts it:

A decade after the world began to notice the losses on derivatives linked to the toxic waste of structured subprime mortgages, American stocks have produced such big returns that the biggest crash in generations barely registers.

And there you have it … the Dow at record highs is the salve that heals all financial crisis wounds.

The WSJ article cites some pretty interesting performance numbers:

The 10-year average compound return on U.S. shares was 4.9% a year after inflation at the start of 2016, only slightly below the average for world stocks since the end of the Gilded Age in 1900, according to calculations for Credit Suisse by Elroy Dimson, Paul Marsh and Mike Staunton of London Business School.

Now, on the surface, the 10-year average return data would suggest that buying and holding throughout any market is the key to success.

But like almost all statistics, that slice of data alone fails to tell the whole story.

The Dow Total Return Index is up 114.4% over the past decade.

Per the WSJ:

U.S. stocks only beat bonds by 0.3 percentage point a year over the past decade, with dividends and coupons reinvested, far below the long-run global average of 3.2 points a year. That is a paltry reward for the extreme volatility of holding on to risky shares through a crash that wiped out more than half of the S&P 500’s value.

“Paltry” is a great word for describing that level of return, especially given the risk of having your S&P 500 index fund get slashed in half.

Still, there are reasons to feel a mixture of soothing and fear about the lack of attention to the 10-year financial crisis anniversary.

Investors should feel a sense of ease and resilience that no matter how close to the brink the system got, the smart money has always come back to seek capital returns.

That may not always be true, but it has been true ever since Wall Street began some 200 years ago.

Investors also should harbor a good degree of fear, as this market appears to be suffering from the same bubble-like illusions that plagued our vision 10 years ago.

The notion that the Fed will keep interest rates near rock-bottom as far as the eye can see is the chief reason for most of the upside in stocks over the past decade.

Now, it’s the promise (and the hope) of the pro-growth policies of President Trump that’s keeping the afterburners glowing on stocks.

If, as we wrote in Thursday’s Afternoon Edition, those pro-growth hopes can become reality, then the record run in the major averages may very well continue.

If, however, that hope morphs into a shattered pro-growth dream, well, let’s hope investors remember laughter.

We’ll need it.

***

The Dow notched its 11th-straight record close after spending most of Friday’s session in the red. That’s its longest such streak since 1992. The Industrials edged 0.05% higher to 20,821.76.

  • Record Dow ETF outflows: FactSet reported that SPDR Dow Jones Industrial Average ETF (DIA) saw more than $2.1 billion in outflows recently, with the bulk of that number ($2 billion) being pulled out on Feb. 15 in what was the biggest one-day outflow in the fund’s 19-year history. (Feb. 15 marked the fifth day of the Dow Industrials’ record closing streak.)
  • New home sales rose less than expected, moving 3.7% higher in January vs. 6.3% estimates. This after December’s 10.4% decline in single-family home sales.
  • Consumer sentiment dropped to 96.3 from 98.5 in January, which was higher than economists’ expected 95.7 reading from the University of Michigan.
  • Rising sales for Nordstrom (JWN): The retailer reported Q4 earnings of $1.37 per share, beating estimates by 22 cents. Revenues came in at $4.32 billion for the quarter and $14.76 billion for 2016, both nearly meeting expectations. The company credits rising online sales and a 4.5% boost in sales at its off-price Nordstrom Rack chain. Shares surged 5.7% in today’s trade.
  • Oil notched a 1.1% gain for the week on continued (and perhaps rising) OPEC production cuts and smaller-than-expected increases in U.S. stockpiles.

Good luck and happy investing,

Brad Hoppmann
Publisher
Uncommon Wisdom Daily

Your thoughts on “It’s 10 Years Gone for the Financial Crisis … Remember That?”

  1. Bubbles and more bubbles.. you know when bubbles expand and continue to stretch!!!!

    I have seen this same scenario play out before.

    Easy money and low interest rates cause this to happen many times before.

    These returns with normal interest rates would never cause these bubbles to happen.
    It would be true capitalism then.

    Housing will be next after the stock market bubble.

    Then the next crisis is the debt the USA has . It can never be paid back at the level it is now and growing. Interest rates rise the government payments to bond holders of US a debt will strangle the USA

    Entitlements Social Security .. the politicians stole the money to fund their pet projects to get reelected. This is theft . I paid into this for years and it looks like they the politicians want to reduce benefits etc.

    They need to put the money back into SS that they stole.

    Medicare, to much fraud and waste. If they cleaned this up it will be solvent for many years.

    Pretty simple to understand but to many politicians for to long have misused their power.

    Term limits only 4 years would help. But they would be consulting for companies with their own interests after 4 years. There would have to be an end to this also.

    America can get out of this mess with honest goverment programs that work for the benefit of all.

    Enough from me.

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