Memory Lane

It was May 1985 when I began to write a monthly newsletter to my clients about the economy, financial markets and geopolitical as well as domestic political happenings that had impact on both. Thirty-seven and a half years have flown by (and by some miracle, I didn’t get any older and some would say wiser) and this month’s column is number 450, comprising 1400 pages and over 625,000 words. What started out as an attempt to inform approximately 50 clients now reaches 1200 client relationships, hundreds of estate planning attorneys and CPAs as well as thousands of visitors to our website each month. It has truly been a joyful part of my career and has allowed me to grapple with the content that stirs my soul, excites and interests me. The engagement that I have with readers who either agree or disagree with my musings has been truly wonderful. The title “Memory Lane” of this month’s article is intentional, as I have decided to exit page one and turn over the monthly economic commentary responsibilities to our very capable Greenleaf Trust research team led by our Chief Investment Officer, Nick Juhle. Michael Odar, our President and CEO, will assume my page one location. From time to time this old man will resurface as a guest columnist primarily focusing on the geopolitical and domestic political events of our times.

Speaking of which, our midterm elections are now over even though some, but relatively few, candidates continue to litigate and protest the results. In last month’s article I confessed to being less than sanguine about the midterm elections. I sensed that the angst in voters was greater than ever before and the threats to democracy through the peaceful and legitimate transfer of power expressed through the electoral process that has been a differentiating cornerstone of our country was never more obvious. In my view, democracy won on November 8. Historic numbers of citizens voted in the midterm elections and did so as a reaffirmation that they valued the responsibility and the opportunity that a participatory representative democracy offers. Regardless of the results or how you view the outcome through the eyes of your preferred party or candidate, the election appeared to have a calming impact on the electorate in general and also gave us a fourteen-month reprieve from the omnipresent onslaught of political advertisements.

Over the past thirty seven and a half years there have been no less than twenty-three major geopolitical and domestic political, as well as purely economic, events that severely impacted financial stability. In almost every event the downdraft in financial markets was severe and many times dramatic. It is also important that, while each event impacted markets in the near term, full recovery and then advancement followed. In fact, from the 1987 “Black Monday” drop of 508 points or 22.7% in one day from its prior Friday, October 16 close of 2,246, today’s Dow Jones stands at 33,708, a gain of over 15-fold from that day.

The 1990s saw an increase in Middle East tensions and the resulting geopolitical threats that occasionally increased angst and caused market sell-offs of varying degrees. January 1991, fresh off of a recession, saw the initiation of the Gulf War following Iraq’s invasion of Kuwait. The war was short, but helped to amplify the schism between the Sunni and Shiite sects of Islam that would cause significant attacks on western developed countries in the next few years.

Terrorism was acted out in increasingly greater scale as evidenced in the early 1990s bombings of the World Trade Center in New York, the Oklahoma Civic Center in 1995, the US Embassy bombing in Africa and the USS Cole bombing in October of 2000 all of which were the precursor to the historical disaster of 9/11 attacks on the World Trade Center and Pentagon. ISIS was growing and active and our over twenty year military engagement in Iraq and Afghanistan began shortly thereafter in 2003.

Geopolitical instability was elevated and coalitions of mostly western developed nations were formed at various levels of solidarity to push back on ideological inspired terrorism. Simultaneously, the dot-com bubble burst in 2000 and a recession immediately followed. The Federal Reserve did what most people expected and increased liquidity while lowering the cost of debt, and the recession was short lived. Equity markets had a long and almost uninterrupted run from 2002 through the third quarter of 2007. As we know the housing boom of the mid to late 2000s was not built on demand, but rather on a thirst for syndicated mortgage-backed bonds. The perfect storm of investor and syndicator greed came together to create the financial crisis of early 2008, plummeting both stocks and bonds and creating a liquidity crisis that caused the failure of many banks globally. We stated then that the recovery from this deep recession would be prolonged and incremental in nature, and would not be the typical recovery of a cyclical business recession. Incremental it was, with GDP slowly growing at 2% per year. It took the consistent compounded slow growth nine years to gradually reduce unemployment to 4.5% and bring full recovery to pension and retirement plan accounts. Slowly and incrementally, housing markets were restored, automobile companies were restructured and business investment in productivity resumed, fueling further growth, and by 2016 GDP growth was approaching 3.3%.

The year 2010 witnessed mass migration in Europe as the Syrian civil war and Bashar al-Assad’s dictatorial persecution of protests created millions of refugees migrating to Western Europe. The seeds of the European Union’s implosion were being sown as Germany, France, Italy and the UK all struggled with assimilating the refugees into weak economies and fearful populations. Extremist attacks in France and London further fueled the appetite among some politicians in the UK to suggest that open borders in the European Union were a threat to the UK. And Boris Johnson became a populist figure cut of similar cloth to Donald Trump as both rose to power during the same year as Brexit came to life.

In early January of 2020 we began to hear the term coronavirus, which was quickly defined as COVID-19. Within a few weeks the term “pandemic” entered mainstream vocabularies as the global freedom of an as yet unrestricted traveling public quickly spread the infection to nearly every country in all hemispheres. Playbooks for combating global pandemics are in fact written, but few people outside of public health leaders read those playbooks. Politicians love to take credit, but are loathe to accept responsibility or blame. In fact, they love to find others to blame, and thus most countries wasted precious time in preparing for and battling the now raging disease spread by focusing on who was to blame. By early March 2020, the United States and every other country were racing to control and treat the disease, as healthcare organizations were overrun and the death toll rose. The global economy screeched to a halt and massive recessions began. Our robust economy plummeted, and unemployment grew to double digits. Governments throughout the world searched for answers to the health aspects of the pandemic as well as the economic tragedies that were evolving. Most developed countries chose direct-to-consumer stimulus programs which allowed people to stay in homes and eat while waiting for the disease to run its course. The impact of the increased stimulus globally was to maintain demand in consumption, but the pandemic impact was to shut down the supply chain of production. The result of this dichotomy was to create the thirst for goods and services in diminishing supply of product, creating massive increases in inflation which we continue to struggle through today. Sensing a weakness in resolve within NATO, and the United States’ fatigue with a twenty-year war in Afghanistan, Putin began his plans to invade and take the south eastern region of Ukraine much as he did in 2014 with Crimea. The interruption of energy supplies to Europe has tested but not broken the resolve of NATO, and the will of the Ukrainian population for independence has surprised and damaged the assumptions Putin began with.

It has been simultaneously a sobering and encouraging walk through the past thirty-seven years of geopolitical events that have impacted financial markets. Sobering because of the repetition of man’s inhumanity to fellow man, but encouraging in the affirmation of resilience and fortitude to not only survive the condition that we find ourselves in, but find ways to thrive while doing so. For those that read this column monthly, thank you for your interest. It truly has been a joyful part of my life. If my opinions have sometimes or even often offended, I offer my regrets. If you have found yourself more in agreement with me than not, then you have been affirmed. In either case, I ask that you continue to seek opinions from a variety of sources and in particular opinions from those that you disagree with. Part of our hope for the future is that we learn the grievances and lived experiences of others and don’t just accept the notions that we are most comfortable with. Especially during this holiday season I wish you and your family the very best. Over and out, end of shift.