The decade we didn't see coming
January 1, 2010
It was the worst of times for investors and the best of times for tattoo artists. Much of what has happened in the past 10 years would have been, in 1999, inconceivable.
That was the year of the bestseller "Dow 36,000" by James K. Glassman and Kevin A. Hassett. They concluded, based on their analysis of U.S. history, that stocks were greatly undervalued and poised for a gigantic run-up. In about five years, the authors predicted, market values would more than triple.
Instead it turned out to be the worst calendar decade ever for stocks, which enter 2010 slightly lower than they started 2001.
How were these experts so wrong? For one thing, the book's index is missing many of the decade's defining, confidence-killing names: Enron, Bernie Madoff, al-Qaida, Katrina, federal budget deficit, Afghanistan, Lehman Brothers, Bear Stearns and sub-prime lending.
The authors did not know that the World Trade Center would disappear in smoke, that taxpayers would end up owning a major share of General Motors, or that the United States would occupy and attempt to rebuild two chaotic foreign countries. Had they anticipated even some of that, their outlook would have been less rosy.
But they did list a few concerns that are still worth remembering. They were afraid that unpredictable nations would get weapons of mass destruction. They were worried that "federal surplus could lead to more government spending." They feared taxes would go up. They saw the possibility of less stable monetary policy leading to inflation.
In short, a favorable environment for growth, unlike the arrival of spring, was no sure thing.
And many of the political challenges that were clear at the beginning of the decade remain unresolved and continue to add to investment doubts. Congress did not simplify the federal tax code. It did not figure out how to pay for the coming retirement of the baby boom generation. The United States did not find a way to entice Cuba to follow Eastern Europe to freedom.
The technological revolution did not continue its skyrocketing trajectory. Housing values, which had been remarkably solid through the years, took a fall that surprised almost everyone.
Unemployment rose, which further hurt corporate profits and government revenue, while adding to government expenses.
It is easy now to ridicule Glassman and Hassett for being too optimistic and for not factoring in the unexpected.
Their biggest mistake was to expect the past to reflect a clear image of the future.
Today you could look back at 2000 through 2009 and foresee even more turbulent times ahead, with scant hope for the economic opportunities that were once easy to find. And you would almost certainly be dead wrong.
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