September 12, 2015, 6:30 A.M. It was 14 years ago the world as we knew it changed forever. At least I wish it were forever. I remember where I was, and if you are old enough, I’ll pretty much guarantee that you do, too.
So I was naturally curious what reaction the market would have on 9/11/2015. What did we learn from this, and what should we learn from the time since?. Let’s look back and see:
- On 9/10/01 the DJIA closed at 9,605
- That was the last number recorded for a week, as the market failed to open that day and for a week thereafter
- When it did open, it fell to 8,920, for a drop of over 7%
- On December 19, 2001, the DJIA regained the 10,000 mark
- A year later, the DJIA was back down to approximately crisis level
- For the next 4 years the index was higher every 9/11 that the year before
- Then came the financial crisis, and we dipped down to mid-6,000s
- In March of 2009, much to my surprise, the index started to recover
- And now we are up over 150% from there, despite the recent correction
So what caused all these things? I first looked at taxes (using the top income tax rate). When “W” came in, he was a tax cutter, starting with the first reduction from 39.6% to 39.1%. Then in 2002 rates were dropped to 38.6%. 2003 saw another drop to 35%. Rates stabilized, and we had a few years of healthy recovery.
- When the financial crisis came in 2007, rates were not affected, but should have been
- 18 months later, we were still in bad shape
- Then Obama kept a campaign promise (darn it) to “soak the rich,” and rates went back to 39.6%, but this time with several marginal rate-hiking add-ons
- And since then, the market has been good, but the economy has not reflected the recovery
- This is evidenced by the FED rate inaction for several years
The change in rates before and after 9/11 was dramatic. Why were rates changed before? Because, Bush inherited a recession.
- Immediately in 2001 the FED started cutting rates, with 8 cuts prior to 9/11
- 4 more cuts followed in 2001, and 1 more in 2002, then 1 in 2003
- Rates rose through 2004, 2005 and 3006
- 2007 and 2008 saw reductions due to the crisis
- The Discount rate had 1 hike, and the Fed Funds rate has had none
My conclusion? Tax policy is more effective than interest rate policy, and the FED doesn’t control that! How is the 2015 economy? Far from robust!
My conclusion? Dump the Federal Reserve (“FED”)! Our so-called “Central Bank” is a bad idea. It has always been a bad idea. Jefferson knew, as did John Jacob Astor. But it happened any, a little over 100 years ago.
For a sobering look at the clandestine origin of the FED, I recommend the excellent book by G. Edward Griffin, The Creature From Jekyll Island. It is available at Amazon and other sources. Please be warned that you will become very upset as you learn the truth about this institution that has far too much influence on us as investors.