I started doing financial planning full-time in August of 1999 (20 years ago, oh my!) having come out the technology sector. My previous day job was writing code to allow information to flow from old legacy databases into a “cutting-edge” technology called a “browser”. I was a “true believer” that the internet was changing the world and would make the traditional business cycle obsolete. It was “different this time.” Everyone was buying, flipping, investing, and what-not into technology stocks.
In hindsight, I was only half right. Wiser folks than me questioned the wisdom of investing in companies with no profits and very complex business models. In less than a year, the business cycle struck back and the dot-com bubble burst. There were some survivors that came out of that dark time and flourished. Maybe a cardboard box with a smile on it graces your doorstep as often as it does mine.
As we approached the end of 2007, I once again heard that familiar refrain, “it’s different this time.” It was… instead of money pouring into firms that simply had the suffix of dot-com, this time it was real estate. Everyone was buying, flipping, investing, and what-not into real estate.
This led to a surge in the economy across the board (as the dot-com boom did as well). The run-up was built on a house of sand though as the world learned that not even a Michelin star chef (Wall Street) can take a bunch of spoiled ingredients (sub-prime mortgages) and create a meal that won’t leave you in the hospital with food poisoning (the Great Recession).
As we turn towards the current world, things do seem… more unsettled. There are the big headline issues like continued tariffs, Brexit, impeachment, and protests in Hong Kong. In the United States, we are now just a little over a year from the next presidential election. There are also a few things that, dare I say, are “different this time.”
One is the reversal of the globalization trend. Globalization is often maligned and it certainly has its costs, but overall has been one of the engines of worldwide economic expansion for more than the last 20 years. The recent increase in tariffs and trade barriers, not only between the United States and the rest of the world but also between other countries is starting to reverse that trend. It remains to be seen whether or not this is a short-term trend or something more secular.
The second thing that is “new” is negative interest rates. In very simplified terms, people are lending money to a number of European Countries and paying those same countries for the privilege of doing so. Why would anyone do this? Well, a known small loss is better than an unknown potential large loss. In very simple terms, imagine you had a choice between losing 10 dollars or a 50% chance of losing 10 thousand dollars. Which would you choose? This is somewhat new territory that we are watching closely to see the effects. As an aside, in my research I can only find one other time where negative interest rates were used. It was in Switzerland during the 1970s and they were using them to deal with currency issues, not to stimulate the economy.
It’s now been over a decade since the “Great Recession” and we have repeated a familiar refrain in meetings along the way, saying that this upward trend will not last forever. To be clear, we do not think an economic contraction (aka, a recession) is imminent. All the economic data around employment, manufacturing, home building, and other indicators are generally positive with the occasional bump.
Kevin P. Sullivan is a Financial Advisor with Raymond James Financial Services located at 1229 Lake Plaza Dr, STE B, Colorado Springs, Colorado 80906, and can be contacted at 719.576.4500. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Any opinions are those of Kevin P. Sullivan and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and investors may incur a profit or a loss. Prior to making an investment decision, please consult with your financial advisor about your individual situation.