Lorna Tilbian: Different this time?

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What do 1989, 2000, 2007 and (maybe) 2021 have in common? They are all years of irrational exuberance that marked the top of the cycle followed by recession, sparked and exacerbated by wild speculation and high leverage.

The past two cyclical peaks – 2000 and 2007 – were followed by the dot.com bust in 2001, triggered by the terrorist attacks of 9/11, and the global financial crisis in 2008, prompted by the bankruptcy of Lehman Brothers. Global markets fell, on average, by about -50% on each occasion and did not bottom out until March 2003, after the invasion of Iraq, and March 2009, after the banks’ stress tests. Recovery eventually came in both instances, but only after locking in huge losses.

How do you avoid these near-existential, but seemingly regular, crashes that cause huge losses? You need to remember two aphorisms about the markets to keep yourself out of financial harm’s way: the laws of supply and demand, which began with the Romans, and the ...