by Gary Alexander

May 29, 2024

Memorial Day was first observed on May 30, 1868, as Decoration Day, to honor 620,000 lost Civil War soldiers who died in battle or in related war infections. Since 31 million Americans were counted in the 1860 Census, that’s a 2% death rate, equivalent to 6.6 million lost, if war broke out today. For 103 years, Memorial Day was observed on May 30. Since 1971, we honor our fallen on the fourth Monday in May.

In these columns, I ask readers to remember history in several other ways, in many arenas, most notably via stock market and economic history, for the purpose of demonstrating that we are a resilient nation. We have faced far worse crises in the past and have always recovered. To create more vivid snapshots in time, I often examine time capsules from 50 or 100 years ago. This week, I’ll look at the summers of 1974 and 1924 as notably dark times in America, but with the seeds of phenomenal recoveries planted very quietly.

1974: A President Resigns, A Market Tanks, But Seeds of Future Fortunes are Sown

The Vietnam War was about to end in an ignominious defeat. President Nixon was on his last legs, about to resign over his Watergate cover-up. The stock market was in a free-fall, as was the U.S. dollar – to gold and most paper currencies. The Dow Jones Index declined 45% from the start of 1973 to the end of 1974, but the other indexes fell faster, particularly in the third quarter of 1974. The new NASDAQ Composite fell from 136.84 in January 1973 (and 95 in March 1974) to 55.67 on September 30, 1974, a 59% haircut in 21 months and -42% in just six months. The S&P 500 lost 26% in the third quarter of 1974 alone.

The economy was cratering. Auto sales were off 20%, housing starts were down 40% and unemployment hit 7.2% by year’s end. Inflation reached double digits for the second straight year, creating a new word: Stagflation. The S&P 500 took a particularly steep stumble (-8.7%) the week after new President Gerald Ford pardoned ex-President Nixon on Sunday, September 8, 1974, of any crimes he may have committed in office, but very quietly that previous week the seeds were sown of a huge generational stock market boom, fueling the biggest bull market of the century, giving Baby Boomers a golden birthright bonanza.

The Employee Retirement Income Security Act of 1974 (ERISA) was enacted on Monday, September 2, 1974. It created the traditional Individual Retirement Accounts (IRAs) that allowed for a self-directed alternative to the dead-end Ponzi scheme called Social Security, in which one person’s forced payroll deductions were (still are) immediately mailed out to someone else, rather than invested in one’s name.

The next year, on May 1, 1975, the Securities & Exchange Commission (SEC) broke up the Big Broker cartel by mandating that brokerages must negotiate commissions with customers rather than charge fixed (top 8.5%) commissions, in what amounted to a price-fixing ring. This gave birth to a discount broker revolution, a big boon to small investors, just after ERISA, when they could manage their own pensions.

Later, with the Revenue Act of November 6, 1978, IRS code section 401(k) added additional tax benefits for self-directed accounts. Then President Reagan was elected, and his zealots passed the Economic Recovery Act of 1981, giving tax benefits to IRAs and Keoghs just before the bull market of 1982 began.

Spock 2

As a result of these legal reforms and a 40-year bull market (with notable disruptions from 2001 to 2008), Baby Boomer-led households’ collective net worth skyrocketed 19-fold since 1990, according to Ed Yardeni. Following the advice of one of the Boomers’ generational heroes, Star Trek’s Spock (“live long and prosper”), this once-rebellious hippie generation has sort of accidentally lived long and prospered.

Ed Yardeni wrote last week that “During the Boomers’ adult lifetimes so far, the Dow Jones Industrials Average (DJIA) increased 40-fold from 1000 in late 1982 to just over 40,000 on Friday. The S&P 500 matched that gain, with its market capitalization rising from $1 trillion in 1982 to over $40 trillion”:

Stock Value Chart

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

In addition, says Yardeni, these Boomers have enjoyed a 40-year super-boom of wealth creation:

  • “Since late 1982, nominal GDP is up more than eight-fold.
  • “Real personal consumption expenditures per household rose from about $55,000 in 1982 to $119,800 at the start of this year. By this measure, the standard of living doubled over those four decades.
  • “Real average hourly earnings rose more than 40% since bottoming in the mid-1990s from about $17 per hour to $24 for production and non-supervisory workers, who account for about 80% of the labor force.
  • “Since 1982, after-tax corporate profits increased 14-fold.
  • “S&P 500 reported earnings per share is also up 14-fold over this period.
  • “The net worth of Baby Boomer-led households has increased 19-fold from $4.1 trillion at the start of the data (compiled by the Fed starting in 1990) to $76.2 trillion during Q4-2023.’

As a result of this litany of blessings, the value of corporate equities and mutual funds (excluding money market mutual funds) held by Baby Boomers has risen from $0.3 trillion to $21.6 trillion over this period, which dwarfs their real estate gain, which barely tripled, from $4.6 trillion in 1990 to $16.0 trillion now.

They’ve lived long and prospered, compared to other cohorts, as the following blue line shows:

Corporate Equity Chart

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

It’s refreshing to see the Gen-Xers and Millennials catching on, too, but as a late member of the Silent Generation (the relatively flat red line, above), I’m a bit chagrined at our under-achievement. I turned bullish on stocks late in life, in 1990, but am thankful for wising up in time for the market’s biggest moves. In talking with several Baby Boomers (born 1946 to 1964), I can generalize that this late-life wealth seems to have taken some by surprise. They invested in IRAs as part of their corporate benefits package, then partook in their company’s matching 401(k) plan and suddenly found themselves sitting on half a million (or more) bucks, plus their home, so they’re happily set for a comfortable retirement.

It’s all thanks to that ERISA law, born in the summer of 1974 amid the tornado of dark news surrounding Nixon’s resignation, Ford’s pardon, high inflation, a deep recession, a weak dollar, soaring gold and WIN buttons. (On September 28, 1974. President Ford concluded an emergency two-day summit on how to fix inflation and recession. His answer was to wear “WIN” buttons: Whip Inflation Now. It didn’t work:  From September 20 to October 4 1974, the Dow fell 13%, but that was the market bottom for the decade).

1924: The Roaring ‘20s Began Amid Scandals and Scares

I’ve covered 1924 before*, so I’ll be brief, and I’ll cover a new angle this time. The Roaring ‘20s didn’t begin in 1920. That was a year of a market crash at the tail end of a global pandemic, plus a Red Scare, an absentee President (Woodrow Wilson had a stroke in 1919, and his wife Edith was de facto President). The next president, Warren Harding, was ineffective and scandal-ridden, but when he died in August of 1923, his VP, Cal Coolidge, launched six years of prosperity with his honesty and pro-business policies.

Roaring Twentys Chart

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

Going into mid-1924, Coolidge faced deep challenges. Congress passed the Johnson-Reed Act on May 26, establishing far more severe immigration quotas, championed in part by a record high (four million) KKK membership. In June, the Teapot Dome scandal reached a boiling point, as a federal grand jury indicted Secretary of the Interior Albert Fall and two major oil company executives on June 30. Far from covering up the scandal, President Coolidge wasn’t silent, condemning all three to purgatory. As a result of his reputation for honesty and incorruptibility, Silent Cal won every North and Western state but one.

Map 1924 1

This history applies to our current election year if you prefer Cal’s pro-business, lower tax policies. Even if this scenario doesn’t seem possible when surveying the likely presidential choices, all 435 members of Congress and 33 Senators are also running for office, and a principled Congress can make a difference.

*Here are some other relevant past columns about 1924, if you want to review some other 1920s parallels:

7-4-23: Happy Birthday, America – and Calvin Coolidge – Navellier

1-3-24: It’s Decision Time: Roaring ‘20s or Stagnant ‘70s? – Navellier

4-16-24: How to Create a Roaring (2nd Half of the) Twenties – Navellier

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Gary Alexander

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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