Any Happy Returns

Chapter 72000–2009: Bubbles and Troubles

September and October of 2008 was the worst financial crisis in global history, including the Great Depression.

—Ben Bernanke

The cycle between 2000 and 2009, like the 1970s cycle, can be described as ‘Fat and Flat’ – the low returns were punctuated by periods of sharp falls and powerful rallies. In total return terms, and adjusting for inflation, the swings were even larger. Overall, however, it was a decade of bubbles and significant market busts, underpinned by growing geopolitical uncertainty. The major market‐moving events included the collapse of the technology bubble between 2000 and 2002, the 9/11 terrorist attacks in the United States in 2001, the Iraq war of 2003 and the Global Financial Crisis (GFC) of 2007–2009. Of these, the technology collapse and financial crisis were the most significant.

Total returns over the super cycle were −58% after inflation and dividends, with annualised declines of 9% (Exhibit 7.1).

Exhibit 7.1 Total returns over the cycle between 2000 and 2009 were −58% after inflation and dividends, with annualised declines of 9%

NOTE: Shiller price/earnings (P/E) is a valuation measure. It is calculated by dividing the index price level by the average inflation‐adjusted 10‐year earnings per share (EPS).

SOURCE: Goldman Sachs Global Investment Research

As Exhibit 7.1 shows, the bursting of the technology ...