Let the Bad Times Roll

Bad times feel bad. Really bad. Like there's so much bad, anything good seems impossible.

Bad times feel bad. Really bad. Like there's so much bad, anything good seems impossible. Like there will be no end to bad. Like we are doomed forever to an existence of faulty financial institutions, rising unemployment, unstable stock markets, closing stores, foreclosing homes, Blagojevichs, Madoffs, and face-mauling chimpanzees.

We're already into our second official year of recession. That's bad, right? Sure seems that way. But our perception of bad today is only as good as what we can compare it to, and for most, that means distant memories. Few Americans clearly remember what extended economic recessions feel like. Recent US recessions, in 2001 and the early 1990s, were relatively shallow affairs. But the 1981-82 recession lasted 15 months, and unemployment reached 10.8%. The 1973-75 recession endured 16 months and saw unemployment touch 8.7%. Inflation in this period hovered above 10% for five quarters.* Prior to the 1973-75 recession, the US experienced recessions every few years or so on average according to official National Bureau of Economic Research (NBER) data.**

Right now, America is adrift in a sea of pessimism and safe shores seem distant. But it's important to remember the US economy experienced recessions—and their bad times—32 times since 1854 (not including the current one). Each time, the US economy not only recovered, but recovered to higher living standards, new and improved technologies, increased productivity, more wealth, freedoms, and opportunities. Similarly, stock markets fell and recovered each time—also to new highs.

There's no question firms face greater obstacles in recessions—capital and customers are more elusive. But business activity hardly stagnates during or following recessions. A downturn's tough environment means the most driven and efficient firms and ideas succeed, often setting a foundation for even better times.

What will this look like? History shows there's no one pattern. In 1954, visions of better times took the form of a hamburger. The first Burger King restaurant opened a few months after the US economy hit an economic trough. Now the franchise chain has more than 11,550 restaurants in 71 countries.*** An anomaly? Not quite. History is dotted with a surprising number of successful household names launched during economic downturns. A few examples:

  • United Technologies Corp., founded 1929
  • Allstate Corp., founded 1931
  • Revlon, founded 1932
  • Krispy Kreme Doughnuts, Inc., founded 1937
  • Sports Illustrated, first issue 1954
  • Hyatt Corporation (now a brand within the Global Hyatt Corp.), founded 1957
  • Trader Joe's, founded 1958
  • The International House of Pancakes (IHOP), founded 1958
  • Charles Schwab Corp., founded 1971
  • LexisNexis, inception in 1970, publicly launched 1973
  • Microsoft Corporation, founded 1975
  • Cable News Network (CNN), launched 1980
  • MTV Networks, launched 1981
  • Adobe Systems Inc., founded 1982
  • Sun Microsystems, Inc., founded 1982

There are firms—yes, even some very big ones—failing in today's economic environment, but there are also ones that are thriving and still others just starting out. Recessions simply don't mean the end to growth, innovation, or value added. Companies having been around for any length of time can attest to that. Sure, some firms retrench during recessions, but for those with the wherewithal and stomach for it, opportunities exist—a few which are unique to recession conditions.

For example, today's lower market valuations offer firms with strong capital reserves the chance to acquire others and/or introduce new products to solidify their market positions. Often, good companies can emerge from economic downturns with more market share and competitive advantages. Cisco Systems isn't sitting still through the current recession—Cisco CEO John Chambers plans on being "very aggressive through this downturn," possibly acquiring firms with the company's $34 billion in cash. National Semiconductor isn't hunkering down either, but moving into new markets.

The US economy is currently churning through changes—not all pleasant. But change is a necessary catalyst for progress. Eventually today's destruction will be outpaced by tomorrow's growth. Thomas Jefferson once said, "Every generation needs a new revolution." Maybe every generation needs to experience economic pain too—if only to realize American capitalism and the entrepreneurial spirit can persevere.

Today's bad times will end. We don't know when or how, or what the economic toll will be. Number crunchers will dwell on that last bit and probably claim we'll never return to the halcyon days of yesteryear. But the future's ahead, not five years ago and not even today. So let the bad times roll, for they can only lead to better ones.

***Burger King Holdings, Inc., Fiscal 2008 Annual Report

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.