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2012 Boom? How Did We Get Here from 2009?

In March of 2009, the Dow Jones Industrial Average dropped to 6,500 from a previous high of over 14,000 less than two years earlier. Banks were not lending, unemployment was out of control and foreclosures were so commonplace that the term “short sale” became a household phrase. The American dream was dead and buried. I was even told by a licensed financial advisor that long-term stock holding strategies would never return (to my credit, I quickly placed that advice in the ‘he’s nuts’ file in my mental file cabinet). All the news reports were of failing businesses, financial woes, government bail-outs and predictions of a decades-long recession…maybe even a depression.

That was mid-year 2009. Mid-year 2012 is now here and the news is filled with stories about speculative IPO’s of tech companies like Facebook fetching estimated initial values in excess of $100 billion (Facebook stock is scheduled to hit the NASDAQ as this is being written). The DJIA is again consistently flirting with closing levels much closer to the 14,000 plus all-time high than the 6,500 valley reached in 2009. An article in today’s Wall Street Journal states that there are now 20 private companies that have fetched valuations in excess of $1 billion from venture capital investors. The headlines all read like those being published during the dot com bubble of the late 1990’s, not the headlines one would expect to see a mere three years after the death of the American dream and the end of capitalism as we knew it.

The question is this: is all of this activity the sign that we are returning to a sustained era of Reagan through Clinton administration prosperity or is this just the beginning of the new bubble, which will soon burst and send us back into the financial tailspin of 2009?

At Penzien & McBride, PLLC, we seem to be experiencing more activity in terms of expanding businesses, sales of non-distressed businesses (and commercial real estate) and start up businesses. Hopefully the trend can continue and the activity we are seeing in the mergers and acquisitions world will translate to a continuing decline in unemployment rates and a return to prosperity in the Detroit area.