Dear Valued Clients and Friends,
Today is the 25th anniversary of one of the most infamous days in American history. It is a day that an increasingly large percentage of the American population was not yet alive for (including, now, tens of millions of young adults). And it is a day, I am sad to say, that many who were alive and present then have failed to remember.
It also is a day that carries significant meaning for investors. I wrote on the 20th anniversary of 9/11 about my own takeaways and reflections of the day’s events. I wrote a year ago about the real economic message in the chosen target of the terrorists. I stand behind both commentaries entirely. But today I want to dive deeper into a variety of reflections about this horrific day. I want to suggest that investors have a lot to learn from 9/11, and that Americans would do well to never forget what happened that fateful day. I have divided today’s Dividend Cafe into three sections: 9/11 reflections from the vantage point of an investor; 9/11 reflections from my vantage point as an American; and finally, the personal and human takeaways that are relevant out of the entire 9/11 experience and tragedy. The takeaways are all very much pertinent to the mission and purpose of the Dividend Cafe.
Let’s jump into the Dividend Cafe …
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Reflections as an Investor
I am starting with this because Dividend Cafe is a market commentary. I also am starting with it because the lessons of 9/11 for investors are among the most important lessons any investor will ever learn. Some historical context is important to avoid treating this like yet another, “yeah, things were bad and then markets rebounded; I get it” moment. I mean, sure, that is obviously true – but it is such a colossal and reckless under-statement, I want to set the record straight.
The S&P 500 entered the 9/11 moment already under duress. We were not sitting in a screaming bull market that then got interrupted by the horrific terror attack. The market had been at 1,553 in March of 2000, and on September 10, 2001 it was at 1,086 (a -30% drawdown totally unrelated to the events of 9/11). The tech bubble burst of the year prior had decimated the Nasdaq (whose drawdown was much worse), and markets were coping with the dual reality of (a) Nosebleed valuations that had to normalize and level set, and (b) The fundamental impact on corporate earnings from the carnage taking place in the technology sector. Never forget that declining earnings are bad for markets, a re-rating of valuations are bad for markets, but the combination of both is the textbook definition of a real and sustained bear market. Markets were going through both in the time period building up to 9/11 – declining valuations and declining earnings. And then the towers got hit.
September 11, 2001 was a Tuesday. The first plane hit at 8:46am, 45 minutes before markets were to begin trading. The New York Stock Exchange was just blocks away from the Lower Manhattan location of the twin towers. I should point out that there was actually trading happening on the floor of the exchange back then – this was before the electronification that has left the NYSE floor now more or less a museum and a TV studio. After the first plane struck, the scheduled opening bell was delayed, but then at 9:03am when the second tower was hit trading was cancelled for the day. In the subsequent 24 hours after the attack the decision was made to keep markets closed for the remainder of the day – not only due to the immense human tragedy and loss (emotional psyche), but the practical reality of severely damaged infrastructure and communications left us without the ability to accommodate functioning markets. Markets would re-open the following Monday (September 17), meaning the four days of a complete market close were the longest period of closed markets since 1933.
On the first day of a market re-opening the Dow dropped -684 points which then equated to a -7.1% decline in one day. For that week the Dow would drop -14%, the S&P would drop -12%, and the Nasdaq would drop -16%. The decline in market value (dollar terms) was $1.5 trillion. Naturally companies with a more direct exposure (airlines, insurers, etc.) were pummeled the hardest, but the entire market was very few risk assets found any solace.
The immediate impact to stocks was not and is not the story. I heard very, very few people then saying, “when will this sell-off end?” The reaction was not about that hour or that day or that week’s trading – the language being used was, across the board, “will markets ever recover?” More specifically, the language was, “will the country ever recover – will the economy ever be the same?” Vice President Cheney and Warren Buffett each made comments about the inevitability of a nuclear attack on American soil. The news footage was, from sun up to sun down, the smoldering ruins of these buildings. Financial firms could not even begin to calculate the damages. Travel? Consumer activity? Forget about it. Optimistic people were talking about the fact that almost nothing in American life was ever going to be the same. I won’t even tell you some of the stupid *&%@ pessimistic people were saying.
The impact to markets was not perceived to be, “this much damage was done and the cost to earnings is going to be X” – which would have been bad enough on its own. The market dynamic was quite literally:
- The health of our corporate economy was already shattered,
- The worst attack on American soil in history has now taken place,
- The entire way we live and think and function will change,
- And companies are going to face severe declines in not only earnings capacity but the excitement for a healthy valuation to go along with such
A market multiple is a belief about the future, and the belief about the future was grim.
I do not recall hearing a serious person or analyst ever entertain the notion that travel, business activity, events, entertainment, etc. would ever, ever, ever return to normal after 9/11. People who wanted to go out on a limb with sunny optimism were talking about 60% of pre-9/11 travel, some day, happening. Companies were cancelling corporate events like a global pandemic had broken out (ummmmm). The pessimism was not universal in terms of catching the bad guys, or protecting America, or some of the various geopolitical elements of the attack – President Bush and even then Mayor Guiliani of NYC were widely praised for conveying a positive attitude and delivering certain levels of leadership that became vital and appreciated (on a bipartisan basis, if you can remember when that still existed) – but when it came to markets and economic activity, the verdict was in:
This time was different.
But, no, it wasn’t.
It doesn’t do the story justice to say, “Americans resumed traveling.” I mean, they did, and they did it way, way quicker than anyone could have guessed (back to pre-9/11 levels by early 2004). But we are actually at 150% of the level of pre-9/11 travel now, with way, way, way more impediments to travel than we had pre-9/11. Baggage screening, wait times, TSA lines, elimination of non-passengers getting into the terminal, and all sorts of other things changed the experience entirely, and Americans responded by … traveling more than ever. I am using the travel example (and will move on to my next point shortly) even though ample other metrics could be used. Travel is the most adjacent to the 9/11 specifics (since it was commercial airplanes used as weapons) but the fundamental point transcends the fact that business meetings and family vacations did, in fact, resume: All economic activity resumed. Were there adjustments? Of course. Did risk factors change? You bet. Did certain sectors have to readjust if not fully reinvent? Absolutely. And yet did the profit motive, self-interest, and the indomitable human spirit restore the very factors that drive wealth creation even after something as ghastly as 9/11? Unambiguously, yes.
And this is the lesson of 9/11 for investors – that there is going to be another 9/11 in markets (not, Lord willing, another terror attack and loss of 3,000 civilian lives), but some other event that we are told means “this time it’s different,” and it is not going to be. I mean, hypothetically, maybe there will be a global credit crisis that brings the stock market down 50% and causes tens of millions of over-levered American homeowners to lose their homes. Check. Maybe there will be a European debt crisis that calls into question the fiscal survival of the west’s oldest continent. Check. Maybe there will be a global pandemic that shuts down the economy for a year (or longer, depending on the scientific acumen of your state’s leaders). Check. And through these hypothetical future, I mean past, events, what will the fallout have in common with 9/11?
That the tragedy is real. The impact is real. The need for change is real. And yet nothing changes, adapts, and corrects more efficiently than markets, because human nature is immutable.
When the next major event comes the temptation to react how many did post-9/11 will be irresistible, and the chorus of “this time it’s different” is coming. And so is the recovery, restoration, and reprimand of those who do not understand this timeless principle: Markets did not correct after 9/11 and do not correct after all systemic and major events because of a thermodynamic law; they correct because markets are human acting, and humans are wildly innovative, capable, creative, and productive.
9/11 called into question the interaction of markets with human nature. And the God-given spirit, nature, and reality of the human person spoke.
And the U.S. equity market is up +1,100% since the week after 9/11 with a global financial crisis, a Euro debt crisis, and a global pandemic all happening in between.
Print that. Save that. Memorize that. Post it to social media. But don’t ever forget it.
Reflections as an American
The lesson for investors is crucial, but I would be remiss if I did not say that there was something outside this economic and investment lane that warrants affirmation. I do not believe there has been a time since the immediate aftermath of 9/11 where I felt that Americans were truly united, truly in love with their shared citizenship, truly willing to subordinate different political beliefs to our common ground as Americans. I am not sure if this moment of President Bush throwing out the first pitch [in front of what was surely a mostly Democratic crowd] could ever happen again, but I do miss it. The basic decency of human beings to mourn the loss of life, to be infuriated at the evildoers who did it, was present then. It feels less presence now. The moral clarity to call out jihadism and treat it as a mortal threat was palpable. Today it seems lost in the ambiguity of political correctness and moral equivocation.
An event that never should have happened took place 25 years ago, and the nation responded with a readiness to heal, an eagerness to serve our neighbor, and a public appetite for unity. The strands that are needed to hold that together – a regard for citizenship, creed, Constitution, and human life – have been shorted, and the shorts are winning.
As an American, I not only can’t bear the thought of another 9/11 event being needed to restore national unity and regard for neighbor, but I am highly skeptical that the contemporary response would look anything like the post-9/11 response did. As an American with strong beliefs and opinions, I just want to say that it never crossed my mind, or the mind of anyone I ever met or talked to, to ask how the person who died on 9/11 voted before I decided if I was mad/sad about what happened. 9/11 was an attack on the American ideals, and only people who have lost love for the American ideals could possibly respond to tragedy with apathy.
The tribal disdain that permeates American public life today was not caused by 9/11, but our noble response to 9/11 did not hold. And we will reverse this or we will suffer – and deservedly so.
Reflections as a Human
I told the story in 2021 of Joleen and I being on our honeymoon when 9/11 happened, of being in the very earliest stage of my time at Paine Webber (now UBS), watching markets tumble, of my wife working in marketing for a global hotel chain at a time when everyone said travel was dead. The “macro” message of the human spirit, of profit-making enterprises, and of the ability of sophisticated companies to respond to changing (and adverse) circumstances in productive ways, was the point of my “investor” section above. But allow me to say to all of you worried about AI, worried about the political divide, worried we are not woke enough, worried we are too woke, worried that China will eat our lunch, worried that we will eat Canada’s lunch, worried you will not be able to afford a house, worried that your kids spend too much time on TikTok, (okay, that one is legitimate …) that those macro principles apply to us in the micro, as well. Our lives, careers, marriages, and journeys are not defined by a particular point in time, let alone one of heightened adversity, challenge, and uncertainty. I did not know markets were going to 52,000 in September of 2001 as Joleen and I were stranded in Tahiti wondering if we had jobs when we got back. And I also did not know the last 25 years would create a $10 billion+ business, over 100 employees, 13 offices, not to mention all the joys that come with three kids, 25 years of family memories, and all the blessings of life.
But I do know this: Just as markets will face another 9/11 distress event, human beings will continue to experience moments of personal and professional distress. And as my post-9/11 experience has taught me, optimism is the only realism (h/t Nick Murray). I never realized how wise the sage advice was applied to our own careers: This too shall pass. But it does. And for everyone who keeps putting one foot in front of the other each and every day (what some us refer to as fighting on), the best will be yet to come. And it is true today as it was on September 12, 2001. The best is yet to come.
Never Forget.
Quote of the Week
“What we believe about life after death directly affects what we believe about life before death.”
~ N.T. Wright
More to Chew on
- One second that lasts a lifetime. Or, why Michigan didn’t really win.
- The decline in reading and academic capability is apparently NOT just a COVID blip
* * *
I have not given any thought yet to what I will write about next week. I leave New York Friday, have a few days of meetings in Southern California then a couple days in my Phoenix office then a big client dinner event in Denver, then back to NYC by next Friday. I’d say I’ve done my part to pad the post-9/11 travel stats. Have a wonderful weekend, all. And God Bless America.
With regards,
David L. Bahnsen
Chief Investment Officer, Managing Partner
The Bahnsen Group
thebahnsengroup.com
This week’s Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet
