by Gary Alexander
May 19, 2020
The more I read the papers, the less I comprehend
The world and all its capers, and how it all will end.
–The opening lines of “Our Love is Here to Stay,”
the final song George & Ira Gershwin wrote
before George’s sudden death in July 1937
The daily news reports, as Ira Gershwin implied 83 years ago, must be designed to confuse us. The science on both sides of coronavirus reporting is confusing, like expert witnesses called by the plaintiff or defense attorneys in a court case. One month, masks are considered worthless, the next month they are mandatory. One month we build dozens of emergency hospitals, even massive medical ships; the next month they all stand empty, while established hospitals lay off skilled staff and file for bankruptcy.
One month, stocks fall 35%. The next month they rise 35%. Who’s in charge here?
This is why I prefer to read history instead of the news. The daily and weekly press seem clueless, or, more accurately, driven by a hidden or obvious agenda. One side bends the data for lockdown, the other for opening up. The facts may be close to true on both sides, but the data is warped to fit a rhetorical case.
Take The Economist’s “Gap,” or Time’s “This Isn’t It,” or The Week’s “Free Fall” covers, for instance:
The Economist came in my mail May 9th. The latter two came May 16th. Taken together, they comprise another contrarian buy signal. First, The Economist’s editors ought to know better. Their staff is loaded with skilled economists and market historians who know that the stock market is an advance indicator of recovery, yet their cover and lead editorial speak of financial markets “out of whack with the economy. Something has to give.” They should know that the market almost always leads the GDP turnaround.
Surely The Economist’s editors are aware that the Dow Jones Industrial Average hit bottom in July 1932 at 41.2, while the economy continued to contract well into 1933, while the Dow more than doubled to 108.7 in a huge “gap” between stocks and the economy. The gap did not turn out to be “dangerous” at all.
The Dow rose all the way to 194.4 on March 10, 1937 when it suddenly turned south, anticipating a second Depression, running May 1937 to June 1938, when unemployment shot back up to 19%. (That must have been what Ira Gershwin was writing about when he “couldn’t comprehend the papers.”)
I just looked at the four biggest, steepest postwar recessions, and in each case the stock market bottomed out over three months before the recession ended. Looking back in terms of severity, the recessions were:
- December 1, 2007 to June 30, 2009 (10% peak unemployment and -5.1% GDP decline). The stock market turned around March 6, 2009 – 115 days before the recession ended.
- July 1, 1981 to November 30, 1982 (10.8% peak unemployment and -2.7% GDP decline). The stock market turned around August 12, 1982 – 110 days before the recession ended.
- November 1, 1973 to March 31, 1975 (9.0% peak unemployment and -3.2% GDP decline). The stock market bottomed on December 6, 1974 – 117 days before the recession ended.
- August 1, 1957 to April 30, 1958 (7.5% peak unemployment and -3.7% GDP decline). The stock market bottomed out on October 22, 1957 – over six months before the recession ended.
By this history, we see that today’s market anticipates a recovery beginning in the third quarter of 2020. If the economic reopening fails this quarter, or if the virus escalates its attack, all bets are off, and we may see a retest of the lows, but for now the market is telling us it has confidence in the return of business.
The cover of “The Week” is clearly designed to scare you. There is no comparison between 2020’s economic fundamentals and those of the 1930s, when the Federal Reserve raised interest rates and cut money supply. Today’s recession was engineered from the top, amid a record-long boom-time recovery, with the Fed and Congress adding over $7 trillion in new liquidity to the economy in just two months!
A Completely Different Global Reaction to a Now-Forgotten China Virus 50 Years Ago
The Hong Kong Flu of 1968-70 killed 100,000 in the U.S., mostly in late 1968, and then 30,000 in the U.K. between July 1969 and the end of 1970, and at least one million and perhaps up to four million worldwide. At that time, I was working in a news bureau and few articles covered the flu. There was no global panic, with no business shutdowns to speak of. There was some mask-wearing but little social distancing. There was an early wave, then a bigger second wave but most people went about normal life.
Like coronavirus, the 1968 outbreak started in China. It quickly engulfed the city of Wuhan, according to an article in The Wall Street Journal April 24, 2020, “before racing across the globe on commercial flights and ships, eventually killing more than 1 million people, over 100,000 of them in the U.S.”
There were a lot of other events going on then. “In 1968-70, news outlets devoted cursory attention to the virus while training their lenses on other events such as the moon landing and the Vietnam War, and the cultural upheaval of the civil-rights movements, student protests, and the sexual revolution,” according to the Journal. Today, of course, we’re hooked on 24-hour cable news, online resources, and social media.
The result, as Ira told us: “The more I read the papers, the less I comprehend the world and all its capers.”
Try reading some history instead, with a special focus on how markets anticipate history.
Also In This Issue
A Look Ahead by Louis Navellier
Deflation is Spreading
Income Mail by Bryan Perry
Here’s Hoping the Reopening Goes According to Plan
Growth Mail by Gary Alexander
This Market Recovery is Justified by History
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
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