Much Better Than It Feels

When the S&P 500 finally bottomed in March 2009, it landed 57% below its previous high set in October 2007.  

By comparison, we are about 10 months into the current drawdown – and approximately 20% lower compared to the market highs last seen in January 2022.

To replicate the full extent of the GFC drawdown, the S&P 500 would have to decline all the way to 2,071.  That’s another whopping 46% down from where the markets closed on Tuesday.  

During the global financial crisis, the unemployment rate rose rapidly, reaching 9.25% in 2009.  

The following year, it peaked at 9.63%.  It wasn’t until 2015 (!) that the unemployment rate finally declined below 6%.  

As of September 2022, the unemployment rate stood at 3.5%.  For context, it actually declined by 0.2% when compared to the previous month, and a full 1.2% when compared to September 2021, 

In September 2008, Hank Paulson was literally on his knees, begging Nancy Pelosi to help pass the bailout package that would ultimately keep the US economy afloat.

It was quite a moment of truth for the former CEO of Goldman, a near-deity in the financial world.  But he had plenty of reasons to swallow his pride.  

The credit markets were seizing up.  The entire financial plumbing that underpins the US (and by extent, the global) economy was in danger of breaking down.  Most dangerously, what started as a purely financial crisis was rapidly engulfing Main Street.

None of that is happening right now.  Yes, there’s some air coming out of asset valuations as we put the long era of easy money behind us.  

Yes, inflation is a threat we all have to contend with.  And yes, the war and energy crises have negative economic repercussions we need to deal with.  

But ask anyone old enough to live through the GFC and they will tell you – the current environment is NOTHING like the anguish, pain, and suffering of 2008/2009.

Down The Hill With No Brakes

What it boils down to is the sense of control. 

In 2008, the Fed slashed interest rates down to zero, a level which had not been seen for sixty years.

It was an equivalent of giving the economy a nuclear jolt – and it had zero effect.  Cue in poor old Hank on his knees, trying to push through a revolutionary asset purchase program.  

Even with asset purchases underway, the market continued to lose confidence.  TARP was legislated into law in October 2008.  The stock market didn’t bottom until six months later.  

Contrast that to today’s market, where the pain may be relatively severe – but is also pretty much self-inflicted.  

After all, the biggest headwind for stocks right now is the lack of clarity on where interest rates will shake out.  It’s pretty tough to price any kind of asset when you don’t even know what the risk free rate is.

Yes, there is some concern that the Fed will “break” the economy by raising too much.  Then again, the stock market is a pretty good arbiter of policy – and for now, it seems to be discounting that kind of a cataclysmic outcome.

So what does this all have to do with you – and your ongoing quest for financial independence? 

To be absolutely clear, this is not a “toughen up” post.  Regardless of how experienced an investor you may be, losing money is never pleasant.  And past crises, no matter how painful, do not diminish the pain of losing money today.  

But at the same time, it’s extremely important to have an objective assessment of the situation.  It informs your investing strategy.  Even more importantly, it informs your career strategy – which is how most people come up with money to invest in the first place.

If you spent too much time consuming financial media recently, you may be excused for wanting to hunker down and batten down the hatches for the next couple of years.  

Remember – the financial media traffics in pageviews and advertising rates, not in helping you build wealth.  Otherwise, they’d be peddling low-cost index funds 24/7.  But they don’t – and by all objective measures listed above, things are simply not as bad as the financial media would like you to believe.

So give yourself permission to kick back, relax, and be a little more optimistic about the state of the world.  Once the current bear market is over, you will likely find that both you and your portfolio ended up much better off as a result.  

As always, thank you for reading – and happy investing.  

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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.

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6 thoughts on “Much Better Than It Feels”

  1. I agree. This time IS much better than it feels.

    There is no larger financial crisis. My neighbors aren’t getting foreclosed on or short selling their houses.

    I try to put it in perspective. EVEN with the declines so far, my net worth is still higher than it was at the end of 2019.

    1. Exactly. I think we’ve had it so good for so long that even a relatively mild decline (amplified by financial media) tends to throw people way off course

      1. Always enjoy the great research in your posts.

        One thing that’s important to consider is that economic pain and financial pain don’t always come as a pair. Completely agree that now doesn’t feel as painful as GFC…especially for a banker! However the scale of the excess liquidity we have/had and the resetting of the risk free rate as central Banks steps back from being a price insensitive scale buyer. This could well see GFC style drawdowns, without the same damage to employment and the real economy.

        1. Thanks James. Agree with you – it’s an excellent point.

          You could have a stock market rally accompany a horrible humanitarian disaster (I believe the stock market rallied for a big part of the second world war), and vice versa, a painful period economically that doesn’t necessarily tribble an equally big reduction int he standard of life.

          Let’s see what happens to inflation going forward. I struggle to “buy” the October rally without proof points that the Fed has got the situation under control.

  2. “Remember – the financial media traffics in pageviews and advertising rates, not in helping you build wealth”

    Everything is in this some words

    1. Passive investing has seen tremendous growth in popularity over the past 20 years. And yet, financial media is in better shape than ever. At this point, I’m just sceptical this will ever change.

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