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A Record Bull Market, Born Amid Panic

It has been 3,453 days since March 9, 2009.

Since the Standard & Poor’s 500 Index hit its low of 666 that day, it has more than quadrupled. As of today, we have experienced the longest-running bull market ever.

Even as investors ride this high, it is worth taking a moment to remember how things looked in fall 2008. An atmosphere of dread, like an atmosphere of exuberance, can make it hard to remember that nothing lasts forever. Financial markets move in cycles, and recessions often accompany or quickly follow a major plunge in the equity markets. We do not know when the next downturn will arrive – few economists expect one anytime soon – but we do know that it will arrive eventually. When it does, wise investors will remember what happened after the last crash. Those who stayed calm and did not liquidate their investments mostly landed on their feet.

As panic spread from the financial markets into the broader economy nearly a decade ago, Palisades Hudson wanted to reassure our friends and neighbors in the New York village that, at the time, housed our headquarters. So we placed a full-page ad in The Scarsdale Inquirer, arguing that the downturn would not be economic Armageddon. Today, we keep framed copies of that ad in our offices in Atlanta, Fort Lauderdale, Florida and Stamford, Connecticut, to serve as a reminder that bad times are inevitable, but bad reactions are not.

Here is the full text that ran on page 14 of The Inquirer on October 10, 2008:

The Panic of 2008

It would be nice to think the current financial trouble is merely a crisis of confidence. Unfortunately, the problems are more substantial. It took time to create this mess, and it will take time to fix it. That’s the bad news.

The good news is that the problems can be fixed. Important steps toward recovery have been taken. More are in the works. Having built an independent $1.3 billion investment management practice, we know that many of our friends and neighbors are worried about what will happen next. We see a lot of opportunity in the future, and little reason for panic.

A Recession Is Probable, A Depression Highly Unlikely. If companies cannot get the money they need, businesses will fail and workers will lose jobs. But the world is not running out of money. Though Americans are poor savers, foreigners have amassed trillions of dollars that need to be put to work. The problem is that the banks, which usually gather idle funds and lend them productively, have so weakened themselves that they are afraid to do business, even with one another. We need banks to get back to work, or else other lending mechanisms must evolve. We are seeing that process begin. The recent $700 billion rescue legislation and the Federal Reserve’s new willingness to lend directly to companies are solid steps toward getting credit flowing again. This will limit any downturn.

Cash Can Be Protected. With increased federal insurance for bank deposits and new protection for many money market funds, the deposits that are the foundation of the credit system are secure. This is not the 1930s.

Long-Term Opportunities Abound. Nobody ever got rich buying at the top of the market, did they? Just two years ago, money itself was the only financial asset that was cheap. Prices of everything else, from condos to collateralized debt, were bid up on the tide of easy credit. Now the situation is reversed. Solid assets are being sold at bargain prices. Nobody can say whether this is the bottom, and prices may yet fall further. But the odds are good that when we look back at this period in five or 10 years, we will see savvy investors who succeeded by buying when everyone wanted to sell.

There Are Issues Beyond The Current Crisis. The long-term risk of inflation and a weak dollar has not gone away. Investors still need to diversify and to balance goals for long-term growth against short-term cash needs and risk tolerance. Contentious fights over taxes, entitlements and spending will be with us for many years to come. A market panic is no time to make major changes in course. But a calm, well-balanced long-term approach is essential for success as well as peace of mind.

Palisades Hudson Financial Group, LLC

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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