- The global economy is now in far better shape than was the case in the aftermath of the Lehman Brothers' collapse a year ago. Money and credit markets have improved dramatically, share and commodity markets have rebounded and economic indicators are recovering.
- The key lessons from the sub-prime mortgage crisis and associated debacle are that there is still a business cycle, monetary and fiscal stimulus still works and, in view of the manic nature of human behaviour, sound regulation of the financial system is essential.
- For investors the key lessons are: that higher returns come with higher risk; be wary of financial engineering and products that are too hard to understand; be wary of having too much debt; and don't think that having a well diversified portfolio of growth assets will necessarily protect you in a financial panic.
It has been 12 months since US investment bank Lehman Brothers failed and set off a roller coaster ride for the global economy. Money markets and credit markets seized up; shares crashed taking US shares to their worst bear market since the 1930s; New Zealand shares slumped as well, although held up better than some other countries, with a much lower New Zealand dollar acting as a release valve; global trade went into free fall as a result of a slump in confi dence and trade finance; and the world economy was knocked into its first contraction since the 1930s. Talk of a re-run of the Great Depression became increasingly common. Fortunately, the world has pulled back from the brink and is now in far better shape.
Read the full AMP Capital Investors September 2009 Investment Insight.