We're not going to moralize or proselytize the social, political, and geopolitical ramifications of September 11th, 2001. But we will state a few facts.
Since the end of the third quarter 2001 to the second quarter of this year (nearly six years), nominal US GDP has risen a cumulative 36%. The stock market has performed similarly well: From beginning Q4 ‘01 to yesterday (9/10), the S&P 500 rose 55%, and the MSCI World index is up 83%. And we note stocks rose over a percent today as well.
We've analyzed in past commentaries market reaction to terror acts, including 9/11, Madrid's rail system, and the London subways. See "Terror's Toll," 7/2/2007 for more. Or read Mark Hulbert's MarketWatch column:
The fact is terror is mostly psychology. It's aimed at destroying the psyches of a collective people using public acts to manifest fear, dread, and alarm. We've mentioned before the importance of understanding psychology for investing, and that same tenet applies for those seeking to understand the issue of terror. Fear is perhaps the most important of all instinctual emotions because it's designed to keep us alert and alive against threats. Fear was great for surviving in the wild tens of thousands of years ago, but today it often hinders our better judgment and perception.
MarketMinder asks investors to use the principle of scaling and comparison to see investment and economic issues more clearly. When we properly scale the economic measure of terrorist acts, truths are revealed terrorists don't want you to know. Poverty is down, unemployment is down, global GDP is surging, stocks are up, and income and wealth are growing. Terror's resounding major effect is …terror. The facts show a resilient world otherwise.
There are some who believe terror's toll is far greater than we assert:
While there is no doubting the legacy of 9/11 will last for decades to come, it makes us a touch cross to read the above headline, which blames today's credit worries and volatility as a "legacy" of 9/11. Essentially, the article claims the Fed had to lower rates too much in response to 9/11. This led to high liquidity and easy money, causing a spate of mortgage and general lending activity that finally resulted in today's credit woes. This is absurd.
Cycles of boom and bust in every market economy are typical, and today's credit and housing worries are no more "crises" than the obstacles free market economies successfully surmount each and every year—ultimately becoming all the stronger for it. Most importantly, times of strife reveal a versatile, interconnected, self-correcting, and rugged market economy beyond terrorists' ability to fathom.
There's no denying the real toll terrorist acts take in lives and collateral damage, but there's also little denying that terrorists' prior attempts to derail our economy and way of life have been utterly futile. The best they can usually do is strike fear. So be it. Fear was never enough to cower hearts sewn of freedom. To date, it seems terror's truest legacy has been to embolden the animal spirits of the global economy toward greater cooperation and prosperity.
Those are the facts.
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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.