Skip to main content

You are here

Blog Listing Page

Ten years after Lehman: Four effects of the Great Financial Crisis

After a few years of synchronized global growth (which we already think may be close to its cyclical peak), it is tempting to see the tenth anniversary of the collapse of Lehman as a historic sign that we are returning to more “normal” times.

But global economy and markets remain deeply unconventional by historic standards—normality is not yet with us. Below are four reasons why the global markets are still profoundly distorted by the Great Financial Crisis and the unconventional policy measures that resulted from it.

1) Sustained outperformance of US equities versus the rest of the world.

The enduring impact of Fed QE, fast-growing technology stocks, and dollar strength have driven sustained outperformance of US equities. A key question for investors is whether this outperformance can be sustained.

2) Extraordinarily low real interest rates.

The Federal Reserve began raising its benchmark interest rate three years ago. It has raised the rate six more times since then, and twice since the new chairman, Jerome Powell, was appointed by President Trump. The Bank of England raised its Bank Rate above emergency levels in August.

This noise around interest rate movements should not mask the fact that the rates remain historically low.

3) Central Bank balance sheets remain enormous.

Although they have fallen marginally of late, Central Bank balance sheets have barely begun to return to normal. The collective balance sheet of the Federal Reserve, ECB, JCB and BoE stood at less than $4T in 2006. This doubled by 2012 and approached $15B by early 2018. It has receded very slightly since but remains unprecedented.

4) Correlation isn’t what it used to be. 

A diversified portfolio, historically regarded as the cornerstone of investment, has been less of a diversifier than it was before the GFC. The see-saw of equities versus bonds is not functioning.

Diversification appears harder to achieve, as QE and other unconventional policy measures have distorted appetites.



© 2018 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE Global Debt Capital Markets Inc. and FTSE Global Debt Capital Markets Limited (together, “FTSE GDCM”), (4) MTSNext Limited (“MTSNext”), (5) Mergent, Inc. (“Mergent”), (6) FTSE Fixed Income LLC (“FTSE FI”) and (7) The Yield Book Inc (“YB”). All rights reserved.

FTSE Russell® is a trading name of FTSE, Russell, FTSE GDCM, MTS Next Limited, Mergent, FTSE FI and YB. “FTSE®”, “Russell®”, “FTSE Russell®”, “MTS®”, “FTSE4Good®”, “ICB®”, “Mergent®”, “WorldBIG®”, “USBIG®”, “EuroBIG®”, “AusBIG®”, “The Yield Book®”,  and all other trademarks and service marks used herein (whether registered or unregistered) are trademarks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, FTSE GDCM, Mergent,  FTSE FI or YB. FTSE International Limited is authorised and regulated by the Financial Conduct Authority as a benchmark administrator.

All information is provided for information purposes only. All information and data contained in this publication is obtained by the LSE Group, from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical error as well as other factors, however, such information and data is provided "as is" without warranty of any kind. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the accuracy, timeliness, completeness, merchantability of any information or of results to be obtained from the use of the FTSE Russell Indexes or the fitness or suitability of the FTSE Russell Indexes for any particular purpose to which they might be put. Any representation of historical data accessible through FTSE Russell Indexes is provided for information purposes only and is not a reliable indicator of future performance.

No responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for (a) any loss or damage in whole or in part caused by, resulting from, or relating to any error (negligent or otherwise) or other circumstance involved in procuring, collecting, compiling, interpreting, analysing, editing, transcribing, transmitting, communicating or delivering any such information or data or from use of this document or links to this document or (b) any direct, indirect, special, consequential or incidental damages whatsoever, even if any member of the LSE Group is advised in advance of the possibility of such damages, resulting from the use of, or inability to use, such information.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing contained in this document or accessible through FTSE Russell Indexes, including statistical data and industry reports, should be taken as constituting financial or investment advice or a financial promotion.

This publication may contain forward-looking assessments. These are based upon a number of assumptions concerning future conditions that ultimately may prove to be inaccurate. Such forward-looking assessments are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially. No member of the LSE Group nor their licensors assume any duty to and do not undertake to update forward-looking assessments.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group data requires a licence from FTSE, Russell, FTSE GDCM, MTSNext, Mergent, FTSE FI, YB and/or their respective licensors.

Blog Listing Page