The United States may be safer from a terrorist attack on the scale of 9/11, but its financial markets somehow seem more dangerous for investors.
The events of Sept. 11, 2001, left the investing landscape in disarray. The markets eventually regained a sense of normalcy but, 10 years on, the disaster's legacy has been to expose the vulnerability of the U.S. financial system to both internal and external shocks.
After two recessions and two bear markets in the past decade -- and with the U.S. economy still at risk of slipping into another recession -- investors think differently about investment risk and opportunities, at home and overseas.
Against this backdrop, MarketWatch asked veteran strategists and investment managers to draw a line from 9/11 to the present in an effort to explain how the country got to this point and take an educated guess as to where it might be heading. Here are their perspectives.
Ed Yardeni: 'In a way, the terrorists succeeded'
Ed Yardeni was the chief investment strategist at Deutsche Bank Securities in 2001. The Wall Street veteran now runs Yardeni Research, an independent institutional advisory firm in Great Neck, N.Y.
"The impact of 9/11 was to destroy any semblance of fiscal discipline in Washington. (There's been) a tremendous widening in the federal deficit and the government's involvement in the economy, and expansion in our overseas military commitments, all under the flag of defending ourselves against terrorism.
"In a way, the terrorists succeeded in pushing us into doing some very unwise things in Washington with regard to our national finances.
"The result has been that the price of gold went from $250 an ounce around 9/11 to a record high of $1,900 as Washington became more profligate. At the same time, 9/11 and the following fiscal recklessness in the United States depressed valuation multiples.
"Since 2000, globally we've had a bear market in valuation offset by a bull market in earnings. Companies have been producing spectacular results. You would think that that would help confidence, and you would see higher valuation multiples. But the domestic and geopolitical concerns are overwhelming, and we've actually seen valuations decline.
"Clearly, the next important event is whether we see some modicum of fiscal discipline come back to Washington. It's not too late to recognize the mistakes we've made and focus on reviving the strength of our economy and picking our military points more judiciously."
Marc Faber: Financial conditions are 'much worse'
Marc Faber, also known as "Dr. Doom," writes the monthly investment newsletter "The Gloom Boom and Doom Report" from vantage points in Thailand and Hong Kong.
"There's no question that today, 10 years after 9/11, the financial structure of the United States is much worse than it was in 2001. Household credit, mortgage debt, government debt, unfunded liabilities, fewer people employed . . . the U.S. is much worse off than before 9/11.
"For that we have to thank expansionary monetary policies. The Fed cut interest rates in January 2001, but because of 9/11, they cut it to 1% and left it at 1% until June 2004. The recovery in the U.S. began in November 2001. Interest rates were far too low, far too long. And even after June 2004, credit growth increased. 9/11 gave (the Fed) ammunition to keep an expansionary monetary policy that led to excessive leverage and excessive credit growth that led to the housing bubble of 2007/2008.
"What has also changed after 9/11 is that geopolitical considerations -- while not the most important issue today in the minds of most investors -- at least have become more important. The engagement of America, particularly in Afghanistan and Pakistan, has led to enormous instability in that region. Plus, the fact that the cost to the U.S. economy of the Iraq invasion and the Afghani expedition must run between $1 trillion and $2 trillion.
"The second consequence of the war is the U.S. dollar is weak. Nobody can tell me the weak dollar is desirable. It's a decline of the living standards of Americans relative to other countries in the world. The U.S., instead of spending on the war, could have used that money to rebuild crumbling infrastructure.
"Without the war effort, I suppose that there might have been less expansionary monetary policies and slower increases in commodity prices. In the second half of 2007 and first half of 2008, the global economy was slowing and in recession, but because of expansionary monetary policies, commodity prices went ballistic and oil rose. It wasn't because of demand going up; it was because of artificially low interest rates. 9/11 expanded the willingness of policymakers in the U.S. to print money."
