January 8, 2019
Pundits on cable TV howl about how conditions are worse now than at any time in U.S. history, and we have “the worst President we’ve ever seen.” I don’t have time to answer every Doomsday theory, but at the start of each year I only ask these gloomy gussies to imagine living 200, 150, 100, 50, or 25 years ago.
200 years ago, the financial Panic of 1819 swept America, triggering one of the worst depressions in American history. As one observer put it, “Nothing is to be seen but a boundless expanse of desolation! Wealth is impoverished, enterprise checked, commerce at a standstill, the currency depreciated.” Prices for basic goods plunged. Cotton prices dropped 50% in one year. Congress passed severely protectionist tariff legislation, to protect America’s “infant industries” as tariff levels kept rising throughout the 1820s.
150 years ago, we began the final year of the first impeached President, Andrew Johnson, and the first year of one of the most disgraced Presidents in history, Ulysses Grant, starting with the gold speculation ring. By mid-September 1869, the “gold pool” held over $90 million in gold contracts – many times the gold supply available on any market. President Grant was part of that pool! By September 15, the price of gold had risen to 138 (meaning 38% over par, or $1.38 in gold per paper dollar). Within a week, the gold corner would collapse, with disastrous results. At the same time, the North and South were bitterly divided under Reconstruction, with the birth of the Ku Klux Klan in the solidly Democratic South.
Speaking of which, 100 years ago, perhaps our most racist President, Woodrow Wilson, was in office. Born in Staunton, Virginia in 1856, Wilson was raised in Georgia and South Carolina. He segregated all government bureaus and arranged a screening of the pro-Klan movie, “Birth of a Nation.” In 1919 alone, this academic idealist tried to dominate the Versailles Conference in Paris, push through his League of Nations and 14 Points ideas through exhaustive whistle-stops throughout America, causing a heart attack on September 26 and a stroke a week later, resulting in his wife being a secret de facto President his last 18 months in office. Also, a Spanish Flu epidemic killed 25-50 million worldwide and about 675,000 in America. The postwar inflation reached double-digits, resulting in a steep, sharp depression in 1920-21.
50 years ago this week, the first trial flight of the Concorde took place on January 9th, the final issue of “The Saturday Evening Post” appeared, after 147 years of publication on January 10, and on Sunday, January 12, Super Bowl III delivered the first AFL victory: New York Jets 16, Baltimore 7. A week later, President Richard Nixon was sworn in on January 20, 1969 with an intention to fight inflation by cooling the economy. A recession inevitably followed. Then, Nixon escalated the war in Vietnam, rather than following his promise to end it, and the market began selling off. From December 3, 1968 to May 26, 1970, the Dow Jones Industrials declined from nearly 1000 (985) to 631, down 36% in under 18 months.
25 years ago this week, on January 6, 1994, the Dow Jones Industrials hit a record high of 3,803.88, and that seemed like just the beginning. On January 22, the Dow passed 3900 for the first time, closing at 3914. On Monday, January 31, the Dow hit a record 3,978.36, but on Friday that week, Alan Greenspan issued the first of seven rate increases in a year, making 1994 a bad market year. The S&P 500 declined 1.5% in 1994, leading to a “Republican Revolution” in the 1994 elections. There were also year-ending 1994 crises in Mexico (the peso crisis, or Tequila crisis) and a bankruptcy in Orange County, California.
At the same time, there was great news each year – the Annexation of Florida in 1819, the Golden Spike linking railroad lines coast to coast in 1869, the birth of radio and RCA in 1919, the moon landing in 1969, and the first International Worldwide Web Conference in 1994 at the European Particle Physics Lab (CERN) in Geneva. You just have to be of a mind – as I am – to look for good news instead of bad news.
Crazy Bloggers and Negative Media Cause Sane Investors to Sell Stocks
We know we can’t trust “Mr. Market” to deliver sanity. If the Dow goes down 660 one day and up 747 the next, we’re not dealing with a sane person. The fundamentals don’t change that radically that fast.
I don’t monitor the blogosphere nuts. As I told you last week, I read books and serious experts I trust, but friends and extended family members send me their favorite website theories and ask my opinion. One I got last week, summarized in a paragraph, said, “The U.S. economy and the dollar are slated for a controlled demolition. The Fed will do everything in its power to prod Trump and conservatives into war with the central bank, because the Fed is now ready to sacrifice itself and the dollar’s world reserve status in order to clear a path for a new global system and ideology. The Federal Reserve is a suicide bomber.”
To spare you the details, Jerome Powell is a plant of a global conspiracy of elites designed to destroy the dollar and bring in a New World Order. All I asked in return was, “If the Fed is ‘destroying the dollar,’ then why is it raising rates when the yen and euro – the two other mega-currencies on earth – offer near zero returns, thus drawing trillions of dollars to the U.S., rapidly lowering Treasury rates and strengthening the dollar, which rose 5% last year against the euro?” They had no e-mail response.
These nuts and media mavens are scaring many investors. The weekly polls of the American Association of Individual Investors (AAII) have been a good contrary indicator. When the market tanks, as it has done lately, these investors turn bearish. In late December, when stocks were at their lowest, their expectation that stock prices would fall over the next six months soared nearly 20% to 50.3% in just two weeks. The AAII noted that 50.3% is the highest bearish reading since April 2013, and the 11th straight week that bearish sentiment has been above the historical average. Falling markets invariably engender mass fear.
Investors act on these fears. During the week ending December 19, investors withdrew $56 billion from mutual funds, the biggest weekly withdrawal since 2008, during a deep recession and the threat of a new depression. There is no threat of a recession today. These sales are generated by media fears, and crazy bloggers, like the guy I quoted above. Do yourself a favor and read history books and sane analysts.