Transcription
The first quarter of the new century brought us a great financial crisis, a global pandemic, and several revolutions in the ways markets coped with it all. Our colleague Romaine Bostick gives us highlights and lowlights.
"How do we know when irrational exuberance has unduly escalated asset values?"
"You had a market that hit a peak in early 2000. It proceeded to drop by about 30 percent in the span of just a few months."
"The big question is hard versus soft landing at this point. My expectation is the fundamentals will probably get worse before they get better."
"The bursting of the housing bubble was a little bit less of a panic and more of an orderly exit."
"We've seen triple-digit swings in the stock market. Major financial institutions have teetered on the edge of collapse, and some have failed."
"Most people began to sell stocks that were directly tied to the housing market. But eventually, that began to spread to other areas of the market that had nothing to do with housing or credit."
"By far, the most important thing is a program be successful, because if it's not, those that are going to pay the biggest price are some of the ones we all care about the most."
"Quantitative easing was the effort by the Fed to stabilize the markets. In fact, it was so ambitious they actually did it 3 times. Once they ended QE3 back in 2014, they had to restart it a little bit less than a decade later when the COVID pandemic hit."
"If the epidemic become pandemic."
"Pandemic."
"Global pandemic."
"I think there's a panic."
"A whole lot of panic."
"The COVID pandemic was undoubtedly one of the biggest exogenous shocks for financial markets in modern history. The market, in the span of really about 5 and a half weeks, plunged 20 to 30 percent."
"This will deliver urgently needed relief to our nation's families, workers, and businesses."
"We saw inflation, headline inflation rates, top 9 percent, the highest for the modern era."
"GameStop is one of the most compelling asymmetric opportunities in the market today. Really, I don't understand how you could disagree with that."
"Meme stocks." [Laughs] "The best way to describe the meme stock boom can probably be summed up in one word: boredom."
"All eyes seem to be on GameStop."
"GameStop to the moon and back."
"Gains in GameStop."
"This has now reached levels of insanity here."
"You're witnessing the French Revolution of finance."
"There is a rebellion aspect to it. There is an anti-establishment aspect to it."
"At this point in 2025, the vast majority of activity that we see in U.S. public equity markets are actually driven by individual investors rather than institutional investors. That has a big impact on prices. It has a big impact on valuations."
Westin: As we begin the second quarter of the 21st century, we're returning to talk of bubbles. In 2000, it was the tech bubble. Now people are wondering if we could be building an AI bubble. Bridgewater founder Ray Dalio has studied the mechanics of bubbles through the years.
"I think you have to relate the markets to the geopolitics, the politics. We have a bubble in 2000. And then 2001, you have the international geopolitical problem in terms of 9-11 and then the war on terrorism. And so we spend about $8 trillion in our wars on terrorism and we run big budget deficits. And then we come into the period where we get down in 2008. We have the great global financial crisis. And the great global financial crisis is not just a financial crisis. It brings over the wealth gap issue. In other words, Occupy Wall Street. And it also was a shock to the rest of the world. And in 2008, very important, that was the first time interest rates hit zero since 1933. And so what happened for the first time since 1933 is we did quantitative easing. We printed money and we bought bonds. That's a marker. And we start to learn that large budget deficits can be monetized. So we learned about monetization. And from that, then we drive it down to negative interest rates. And of course, through this all period is the digital technology, the development of all the digital technologies. You know, devices like this. Think about this. This is the everything object and the communications and so on. Very unexpected in many cases in terms of what the effects would be. And then 2016, the change, the big change in the world order and the big change domestically. The beginning of populism. And Donald Trump being elected president. And so we have this greater polarity left and right that reflects the wealth gap differences. And then that meant a big change in the relationship with China. In other words, recognizing that there's a great power conflict. And that great power conflict goes from globalization to nationalism. And the change in that world order. And of course, at the time, in order to be stimulative, there's the printing of money and buying a lot of debt, which drives interest rates down to be negative in some places. And certainly real interest rates to be negative. And now what that does is it causes the leveraging up of assets. In other words, private equity, the emergence of private markets, venture capital, private equity, all being leveraged up. At that point, we begin to have the tightening. We're beginning to feel that effect, the deterioration of the venture capital market and the private equity market, and the fragility associated with that. So now we have an economy where so much of it, since really 2020, large budget deficits and necessarily the monetization of that. Large gaps in wealth, and values, and in populism. A great power conflict. Acts of nature, droughts, floods, and pandemics have been a major force in history. And that certainly was the factor in terms of seeing, not only the pandemic, but also climate change and its effects."
Westin: Some of the major developments over the last 25 years you referred to, like the great financial crisis, 2008, and the pandemic of 2020, have caused the government, the United States, but also other governments to play a more active role in the markets. Some people have said they've gone from being a referee to actually being a player in the game. What are the consequences of that for financial markets?
"That's always been the case in times of great conflict. If you look at when there's great geopolitical conflict, there becomes the necessity to go from a consumer-based economy to a more directed economy of how do you use the resources. If people just get rich and buy expensive things, like expansive handbags and so on, and it's not directed, you're not going to have the country be competitive. In the AI world, you have to build infrastructure. You have to build sources of energy. So there has always been, at similar times, the bringing in industrial policies, as we call them, in order to create that direction. And so, for example, in AI and related technologies, quantum computing and the like, it's quite typical in history to see what's now happening in terms of the competition, or let's call it the tech war between the United States and China, because the tech war is also related to the military war. Whoever wins is going to win everything."
Westin: Ray, what about geography over the last 25 years in terms of financial markets? Where have there been surprises in some regions growing a lot, maybe unexpectedly, or others diminishing? I think, for example, of the contrast between the Middle East, on the one hand, where you've been very active, and Europe.
"It has to do with immigration and migration. There's been a dramatic change in the population and the politics of what it means, that it's become even cultural. So I would say, you know, the movements of people, or even the changes in the numbers, the demographics. In other words, Europe, the United States, China, a number of these countries, which generally speaking, what we would think of as the developed world, for the most part, although it includes China, have declining populations. And in the emerging world, the Global South, as we call it, they have growing populations that want to migrate. And that's connected to climate change. Because as climate change creates greater heat, and so on in these areas, it drives migration. And so as we're looking at the migration and the immigration issues, they become greater issues. I think if you just look at the administration's new report on its strategic objectives and the way it views the world, you can see that there are even cultural issues. In other words, which are the areas that maintain their culture or do they have migration issues? So these are geopolitical issues that are all connected."
Westin: I suspect if we talked to you 25 years ago, you would have predicted China would be a major force. Would you have predicted that the Gulf, Saudi Arabia, and the surrounding countries would become as prominent as they have?
"Basically, all you need is three things to happen to have a successful country. First, educate your children well so that they can be productive and earn incomes, and that they're civil with each other. And then second, if they come out to a country where people can work well to be productive and that there are financial resources like the capital markets to be able to be productive and everybody earn, and, in other words, the basics, earn more than you spend and have more assets than liabilities. If you're financially sound, and productive, and civil with each other, that's key. And then stay out of wars. Stay out of internal conflicts, that when you have that internal conflict, or an internal war of sorts, or an international war, that's a problem. So some of these places, I can say that over maybe... maybe now I see it better than I saw maybe 25 years ago."