Is It Different This Time?
August 1, 2008

As stock prices have slumped around the world over the past year, investors have been confronted with a barrage of grim news—falling home prices, rising costs for food and fuel, and worries over the fragile health of the banking system. Some have concluded that the current state of affairs bears little resemblance to the past and are questioning the wisdom of maintaining consistent exposure to equities at all.

We don't know what the future for this business cycle looks like, but we do know that on many occasions in the past, investors were confronted with "unprecedented" events that tested their willingness to maintain a diversified approach. A few examples:


"On Wall Street, the most unnerving stock market reports since the Depression 1930s became daily more dismal."
- Time, "The Economy: Crisis of Confidence," June 1, 1970.

"Fed up with rising food prices, thousands of women took to the streets in protest. . . . [President Nixon] announced that ceilings were being imposed on prices of beef, pork and lamb."
- Time, "Changing Farm Policy to Cut Food Prices," April 9, 1973.

"The only way that the US can scrape through the next several years without major economic and social disruptions is to ease off dramatically on energy consumption."
- Time, "The Arabs' New Oil Squeeze: Dimouts, Slowdowns, Chills," November 19, 1973.

"There have been multiplying signs that the long American romance with the big car may finally be ending. . . . Economists generally are agreed that the era of readily abundant fuel has ended for good."
- Time, "The Painful Change to Thinking Small," December 31, 1973.

"Investors have been frightened of an economy that seems out of control. . . . The stock market has scarcely been so shaky since 1929. . . . A Gallup poll published last month found that 46% of adults feared a depression similar to the classic one of the 1930s."
- Time, "Seeking Relief from a Massive Migraine," September 9, 1974.

"The woes of inflation and stagnation have touched nearly every American, but while some people are only slightly bruised, others feel as if they have gone ten rounds with George Foreman and are down for the count. . . . Pawnbrokers are gaining from once affluent people who have lost their jobs and are trying to get anything that they can out of jewelry or expensive cameras or appliances."
- Time, "Who Is Hurting and Who Is Not," October 14, 1974.

"Financial markets at home and abroad have been devastated in recent weeks as frantic traders and investors scrambled to come to grips with the anti-inflation policies of the Carter Administration and the Federal Reserve Board. . . . After a nervous September, Wall Street succumbed to despair, and the stock market was bloodied by what is being called the October massacre."
- John M. Lee, "Tumult in the Markets," New York Times, November 6, 1978.

"Fortunes were conjured out of thin air by fresh-faced traders who created nothing more than paper."
- Walter Isaacson, "After the Fall," Time, November 2, 1987.

"The next recession won't look like any that has preceded it in recent decades. . . . We are so heavily indebted that a slump would quickly turn into a Latin American-style depression."
- Ashby Bladen, "Borrowing to the Bitter End," Forbes, September 4, 1989.

"Chase Manhattan, the second largest US bank, is letting go 5,000 employees, or 12% of its work force, in a struggle to remain solvent. . . . The construction industry has creaked to a virtual halt after a decade of overbuilding. . . . From stock markets to supermarkets, high anxiety rules the day. . . . Now the specter of war, rapacious oil prices, and a far-reaching recession haunts political and business leaders everywhere. . . . The banks are basically pushing panic buttons everywhere."
"I want to say we're in a recession, but that's not a strong enough word. In some regions, it's a depression."
- John Greenwald, "All Shook Up," Time, October 15, 1990. Final quotation attributed to William Hensler, chief executive, Wickes Lumber.

"Imagine every office building in Manhattan empty, a commercial ghost town. Now double it. That's how much vacant office space—500 million square feet—there is in the United States today. Behind much of that empty office space stands the nation's banking system. . . . The worry today is that the real estate recession, which is spreading nationally, could severely weaken the banking system, pulling down many smaller banks and a few big ones as well. . . . 'Our real estate market is as bad as we've had since the 1930s,' said Leo Spang, a Boston banker and president of the Real Estate Finance Association, a trade group."
- Steve Lohr, "Banking's Real Estate Miseries," New York Times, January 13, 1991.

"Falling real estate prices and the fragile state of the banking system make this recession unlike any other and extremely difficult to forecast."
- John R. Dorfman, "First Boston's Bear, Carmine Grigoli, Refuses to Stop Growling Despite Stocks' Big Rally," Wall Street Journal, February 7, 1991. Quotation attributed to Carmine Grigoli, chief investment strategist, First Boston Corp.


"The nation's top auditor said today that many more banks were effectively bankrupt than regulators had recognized. . . . 'The bank insurance fund is nearly insolvent, and I cannot overemphasize how important it is to restore it as quickly as possible,' Mr. Bowsher [Comptroller General] told the Senate Banking Committee."
- Stephen Labaton, "Bank Deposit Fund Nearly Insolvent, US Auditor Says," New York Times, April 27, 1991.

"We're going into one of those long periods where the market does nothing except consolidate this huge move up we've had. Dow 4000 is going to be with us for a long time."
- Daniel Kadlec, "Will Weary Legs End 20-Year Bull Ride?" USA Today, December 6, 1994. Quotation attributed to Seth Glickenhaus, senior partner, Glickenhaus & Co.

"This economic convulsion is unprecedented in the post-World War II era."
- Robert J. Samuelson, "A World Meltdown?" Newsweek September 7, 1998

"This time it is different. This time the market won't be so quick to bounce back. . . . Who can look at the world right now and not conclude that things have changed dramatically?"
- Joseph Nocera, "Requiem for the Bull," Fortune, September 28, 1998.

"Wall Street stocks have plunged—Merrill Lynch down 59%, Morgan Stanley down 59%, and Lehman Brothers down 67%. . . . The real problem is with the risks that are unquantifiable."
- Bethany McLean, "Can the Brokerage Stocks Come Back?" Fortune, October 26, 1998.

"Investor nervousness pushed stock prices lower yesterday and sent signals of distress through the corporate bond market. . . . Many companies are overloaded with debt at a time of slowing economic growth. Among the stocks leading the decline yesterday were those of companies sensitive to the business cycle. . . . A Morgan Stanley index of 30 of these stocks plunged 4.7 percent yesterday, reflecting the worry that the economy may be headed for another recession."
- Jonathan Fuerbringer, "Negative News from Some Blue Chips Takes Heavy Toll," New York Times, October 10, 2002. [Note: major US stock market indexes registered multi-year lows on October 9, 2002.]