by Gary Alexander

August 16, 2022

I was somewhat surprised to read an Opinion in The Wall Street Journal last week (“RIP Big Bull Market (1982-2022” by Andy Kessler, August 8) saying that a 40-year bull market just ended, especially when it came from a veteran market analyst like Andy. Like me, he keeps track of important market benchmarks, and I guess this was his way of marking the date that El Toro Grande began, 40 years ago, August 1982.

True enough, but that bull didn’t end in 2022. It ended in Y2K, lasting 17 and ½ years. You may recall two mega-bear markets from March 2000 to March 2009 – first, a 2000 dot-com bubble in which the S&P 500 fell nearly 50%, 2000-03 and NASDAQ fell nearly 80%, and then the S&P 500 lost 55% loss, 2007-09. In those nine nasty years from 2000 to 2009, the S&P 500 fell a net 50% and NASDAQ dropped 75%.

If that’s not a wealth-killing mama-bear-mauling from deep in Grizzly Bear Country, tell me what is!

A bigger story is that we’ve overcome so many reversals like that in the last 40 years that the COVID bug of 2020 only caused a 5-week dip before the S&P 500 shot up 20% in the first three days of its bounce-back. This year, NASDAQ is already up 22.6% from its mid-June lows in under two months. As I showed in (1) three separate (2) posts here, the “sweet spot” of the four-year Presidential cycle is from the fourth quarter of the mid-term election year to June 30 of the following year, and it may (3) happen yet again.

This week, I’d like to take a different angle on growth than the stock market alone. Should we consider putting Andy’s “RIP” tombstone on two centuries of growth? There was huge growth after the American and French Revolutions (and Napoleonic Wars), and again after World War II, and in the 1990s after the Berlin Wall fell and the Internet transformed us. Have we run out of ideas? Are the good times over?

For evidence of this economic Big Bang Theory, I want to cite the work of British economist Angus Maddison (1924-2010), who made a life’s work of measuring global growth back 2,000 years.

World per Capita Gross Domestic Product Chart

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

Like an economic archaeologist, Maddison tried to measure the imperfect shards of written records and long-gone currencies to take an educated guess at national output per person. He identified a “startling discontinuity” that began around 1820 in his book “Monitoring the World Economy, 1820-1992.”

He wondered why economic growth didn’t start with all those creative geniuses in Greece 2,500 years ago or the political and military power of Rome, or in the Renaissance with all those great inventors. Why didn’t those good ideas ever get off the drawing board? Why didn’t gold make those explorers truly rich?

Here’s a more granular look at nine nations in the last 500 years from Maddison’s economic microscope:

Five-hundred Years of the Gross Domestic Product Per Capita Chart

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

Expanding on these ideas, William J. Bernstein wrote, “The Birth of Plenty: How the Prosperity of the Modern World Was Created” (2004). What happened in the 1820s that kicked off the Big Bang? Maddison and Bernstein put forth four basic elements that made prosperity grow: Property rights under common law, scientific rationalism, advanced capital markets, and the great advances in transportation and communication. These ideas were largely European in origin, but American in their expansion.

As I have written before, the Erie Canal was developed in New York State, followed rapidly by the railroads, and then telegraph technology. The speed of travel increased tenfold. It took Thomas Jefferson 10 days to travel from his home at Monticello to the capital in Philadelphia when he was President. Fifty years later, it would take a person just one day. With the telegraph, news became almost instantaneous.

Technology follows freedom, so I must go back to 1776, when freedom emerged from Adam Smith’s “Wealth of Nations,” combined with America’s political “Declaration of Independence.” Although the Constitution and Bill of Rights did not come along until 15 years later. the Constitutional principles were clearly spelled out in the “Wealth of Nations” as in this foretaste of the Ninth and Tenth Amendments:

Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which, no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.”

“According to the system of natural liberty, the sovereign has only three duties to attend to… first, the duty of protecting the society from violence and invasion of other independent societies; secondly, the duty of protecting… and, thirdly, the duty of erecting and maintaining certain public works.”

–Adam Smith, “The Wealth of Nations,” 1776 (Chapter 9, page 286)

Those two paragraphs (expanded in the Constitution) forbid about 95% of the legislation coming out of today’s Congress, including favoritism of energy sources, picking industry winners, and most regulation.

After freedom emerged, the seeds of growth were further protected by the Patent Act of 1790, the Bill of Rights in 1791, and two financial milestones in the Spring of 1792. On April 2, The Coinage Act of 1792 mandated that only gold and silver coins (plus copper pennies) were allowed for our decimal-based dollar. This guaranteed the constant value of the dollar over most of the next 120 years – until the Fed was born.

Then on May 17, 1792, the Buttonwood Agreement formed what became the New York Stock Exchange. In 1817, NYSE formed a new constitution. Its first major act was to fund the equivalent of a “moon shot!”

In 1817, New York Governor DeWitt Clinton sounded like President John F. Kennedy when he said, “The day will come in less than 10 years when we will see Erie water flowing into the Hudson.” He was right. The canal opened in 1825. His boosterism caused a mania in canal securities, which put the young NYSE on the map. The Erie Canal ran 363 miles, dropping 555 feet through 83 locks. It was 40 feet wide and four feet deep, dug entirely by hand. It was like a “moon shot” that everyone thought might take decades.

The Erie Canal - America’s First Great Infrastructure Program Image

Canals soon gave way to rail-mania. On April 24, 1832, the New York legislature granted a charter to the Great Erie Railroad. The charter said the company had to raise $10 million but the railroad was prohibited from organizing until half the stock was underwritten – a huge hurdle by the standards of the day, but they did it. By the end of the 1800s, railroads comprised over 60% of NYSE’s capitalization.

The result of property rights, science, capital, and transport was a BIG BANG of global growth after 1820:

Annualized per capita World Gross Domestic Product Growth Bar Chart

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

Enough about the Big Bang! Getting back to “RIP, Wall Street,” Andy Kessler is an engineer and Wall Street veteran, but his August 8 column seems to say the opportunities of the past are now hard to find. “Forget last cycle’s winners, find new ones – next generation machine intelligence, geothermal energy, gene therapy, insta-vaccines, nuclear fusion, or, more likely something completely out of left field…”

OK, game on. This week, I plan to invest in two bio-tech stocks specializing in Alzheimer cures and two others in water purification and energy alternatives. I don’t buy stocks often, maybe once a year, after long study and waiting. Maybe only one will click, maybe none, but I don’t think the days of growth are over. I refuse to sit on the sidelines clipping bond coupons at age 77, and index funds are un-American.

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

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
Here Comes the S&P 500 Line in the Sand

Sector Spotlight by Jason Bodner
Which is More Powerful – Big Buying or Big Selling?

View Full Archive
Read Past Issues Here

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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