Economy not as bad as previous financial crises, experts say

Is the current economic climate worse than the market turmoil witnessed during the global financial crisis of 2008-2009 or the period of runaway inflation in the early 1980s?

While the landscape now looks dark for many asset owners and investors, Sue Crotty, New York-based senior vice president and chief investment officer at Segal Marco Advisors — who has been in the industry for 40 years — said she does not think conditions are the worst she has ever witnessed and is trying to impart that wisdom to her clients.

"We are definitely in a bear market now, and many investors and asset owners have never before experienced things like high interest rates and high inflation," Ms. Crotty said. "But I remember how bad inflation was in the (early) 1980s, worse than now."

Indeed, in January 1980, the annualized inflation rate was 13.9%, reached a peak of 14.8% in March of that year and remained well above 12% for the remainder of the year.

By comparison, inflation stood at 7.7% in October, down from 9.1% in June.

Ms. Crotty also tells her clients that the current crisis has a "different feel" from the global financial crisis of 2008-2009. "Back then, we witnessed dislocation and systemic failure in markets and the economy," she said. "That crisis was more comprehensive than what we are seeing today."

In that prior economic conflagration, the meltdown in the subprime mortgage market resulted in financial institutions getting stuck with trillions of dollars of almost worthless investments in subprime mortgages. Investment banking giants Lehman Brothers and Bear Stearns collapsed in the maelstrom.

Nimisha Srivastava, the Charlotte, N.C.-based North America head of investments at Willis Towers Watson PLC, concurred with Ms. Crotty that the global financial crisis was certainly worse than the current climate.

"While this year has been disappointing from a returns perspective, the sell-offs and poor returns from mainstream markets have been fairly orderly, notwithstanding some smaller segments of the market which have experienced heightened liquidity issues," Ms. Srivastava added.

However, Ms. Crotty warned that the current bear market won't be resolved anytime soon.

"This year has been a long slog, but we are advising clients to remain cautious and not panic," she said.

Ted Benedict, San Diego-based managing principal and consultant at Meketa Investment Group, concurred.

"While markets have been very volatile, the economic climate actually doesn't seem that bad," he said. "Demand is strong, the labor market is tight, and personal savings rates were solid coming out of the pandemic."

The uncertainty of the present climate is coming from "uncertain future inflation expectations and the future economic climate in a higher interest rate environment," he noted.

"The economic climate was worse in 2008, when you saw market liquidity evaporate, a weakened banking system, and a wave of bankruptcies," he added.