November 12, 2019

The Dow Jones Industrials closed Thursday night November 9, 1989, at 2,603.69, although the concrete was already crumbling on the Berlin Wall. By dawn Friday, the 28-mile-long (and 28-year long) Berlin Wall, the most chilling emblem of the Cold War, was suddenly a pile of rubble.  All night long, East and West Germans celebrated their new freedom, as they walked freely across that once-deadly dividing line.

East and West Germany soon united.  By Christmas, each Eastern European Soviet satellite collapsed, like … well, like dominoes. How did this “domino theory” work so well, in reverse?  First, Gorbachev’s glasnost (openness) and perestroika (restructuring) led to the resignation of Erich Honecker, East Germany’s brutal Communist ruler. Then, the East Germans opened their borders to West Germany.

The market, of course, loved this surprise burst of freedom, rising 22 points the next day, November 10. Then, the Dow rose 150 points (+5.7%) in the next three weeks. It then more than quadrupled in the next decade, to 11,000 by late 1999 in the best decade for stocks in the 200-year history of Wall Street.

As we look back from this vantage point of 30 years later, we can see the markets rose 9-to-18-fold:

Market Index November 9, 1989 November 8, 2019 30-Year Gain
NASDAQ Composite 454.07 8,483.16 +1,768.2%
Dow Jones Industrials 2603.69 27,671.24 +962.8%
S&P 500 336.57 3,097.77 +820.4%
Data Source: Yahoo Finance; Investor’s Almanac

These market gains reflect the sudden growth in the volume of trade in the U.S. and Germany post-1989:

Export of Goods and Services Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

It’s a lesser-known fact that China also committed to a more open-trading economy after Tiananmen Square. In the early 1990s, Deng Xiao-Ping reaffirmed his economic reforms in a southern tour of China in 1992, reopening the Shanghai stock market and launching a new economic zone in Pudong, across the river from Shanghai, a former farmland, now among the most prosperous new trading centers in China.

Hundreds of millions in China and other nations have emerged from absolute poverty into middle-class lifestyles through access to global trade. According to The World Bank, 1.9 billion people lived in extreme poverty in 1990 (36% of the world’s population), but the percent living in absolute poverty decreased to 630 million (8.3% of global population) in 2018. (Source; https://ourworldindata.org/extreme-poverty )

As the next chart shows, the most dramatic increase in wealth and decline in poverty has taken place since the fall of the Berlin Wall in 1989, creating wider access to global trade:

World Population Living in Extreme Poverty Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

A Veterans Day Lesson – Freedom Can Be Fragile

At the time the Berlin Wall fell, many pundits in America were still touting the coming crash. At major investment conferences I attended, the bears always dominated. Ravi Batra had a best-selling book, “The Coming Depression of 1990 – Why It’s Got to Happen, How to Protect Yourself.” Instead, we were about to launch the best decade in stocks ever. (The only “Depression” in the 1990s came in Japanese stocks.)

At last week’s New Orleans Investment Conference, I’m happy to report that one lifelong perma-bear – who had predicted a “Greater Depression” to come, at every conference since 1979, told me in the final panel that “maybe I should reconsider my 40-year stance as a perma-bear,” so there is indeed some hope!

Back in late 1989, however, some pessimism was understandable. Five months earlier, demonstrations in Tiananmen Square in China led to a brutal repression of demonstrators and a crackdown on freedom, so why should the Berlin Wall fall without repercussions from the Soviet Union, as in 1956 in Hungary?

Going back further to Armistice Day, 1918, on the 11th hour of the 11th day of the 11th month, the “Great War” ended, but the Armistice was a hollow victory since the world never recovered from World War I, as it led to a global Depression followed by a second World War and then a long Cold War after that.

Going back even further, the French Revolution of 1789 solved nothing. It soon devolved into a Reign of Terror, then Napoleon’s costly wars, and then the Bourbon Restoration, as if nothing had ever changed.

After the fall of the Berlin Wall, we went through some false hopes, reflected in a book called “The End of History” (1992) by Francis Fukayama. The book proposed that the end of the Cold War and dissolution of the Soviet Union meant that the world would soon be entirely liberal democracies, but that didn’t turn out to be true, as demonstrated so dramatically on September 11, 2011 in an attack by radical Islamists.

As we prepare for the coming 2020 election year, let us not forget to celebrate the 400th anniversary of the Mayflower Compact, which set the tone for America’s freedoms. On November 11, 1620, the Mayflower set anchor in what is now Provincetown, at the tip of Cape Cod, Massachusetts. At anchor, the Mayflower Compact was drafted and signed by the 41 male Pilgrims on board(mostly Puritan Separatists, who had traveled to America to escape the jurisdiction of the Church of England).  The Mayflower Compact was later hailed as the origin of the democratic institutions that evolved into the Declaration of Independence.

Yesterday, we celebrated our veterans on November 11. The battle for freedom is never over. As Ronald Reagan said, “Freedom is never more than one generation away from extinction. We didn’t pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same.”

Markets were open on Veterans Day, but all investors must thank our veterans for the peace they deliver.

About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander