by Gary Alexander

August 4, 2020

Last week, I defended my “Name That Tune” crown against five challengers in a virtual ZOOM contest. In the end, I lost to a brilliant scholar who teaches music history at several universities, often writes for The New York Times, is a Senior Scholar of the National Jazz Museum in Harlem, and has won two Grammy Awards for Best Album notes in massive box CD sets I own – so I have no shame in losing to such a talent. However, I did answer two questions right, and therein lies a lesson in long-term investing.

Question #1: Ervin Drake wrote this song of remembrance in 1961. It later won a Grammy for a Frank Sinatra recording in 1966. Name that Tune. (Take a guess…)

Question #2: Kay Swift wrote this title song for her own Broadway show in 1930, the first Broadway show written entirely by a woman. Name That Tune. (The answers are with their picture captions, below)

Name That Tune Challenge Erwin Drake and Kay Swift

Both songwriters lived to age 95-3/4. Kay Swift was born less than a year after the Dow Jones Industrial Index was born, and she married a noted financial magnate, James Paul Warburg, later an advisor to President Franklin Roosevelt and son of Paul Warburg, a founder of the Federal Reserve Bank in 1913. Writing as “Paul James,” her husband also provided lyrics to her hit songs, “Fine and Dandy” and “Can’t We Be Friends?” a quite literal marital offer, since they divorced in 1934 after her extended dallying with George Gershwin.

The year 1930 saw the Dow decline 33.8%, so it was not a “Fine and Dandy” year, but the show ran for 250 performances, which was excellent for the Depression era. During her 96 years living in and around Wall Street, the Dow Jones index rose 62 calendar years (45 by double-digits) and it fell 34 years, rising from about 40 to 3,300, over 80-fold. That was “Fine and Dandy,” especially with all those hefty dividends re-invested.

The market performed even better in Ervin Drake’s 96-year run from April 3, 1919 to January 15, 2015, with 66 up years in the Dow (47 by double-digits) and only 30 down years. In fact, we could catalog his bull and bear years by his three biggest hits – all written in down years. From negative to hopeful to positive, they were:

Downbeat: In 1946, Billie Holiday recorded his Good Morning, Heartache. The Dow declined 8.1% that year.

Hopeful: In 1953, Drake wrote “I Believe” for Jane Froman, who requested a song of hope for her to inspire the American people in response to the rising death toll in the Korean War. The Dow fell 3.8% that year.

Positive: In 1961, he wrote, “It Was a Very Good Year,” and it was (+18.7% in the Dow), but when the song won a Grammy for Best Arrangement (by Gordon Jenkins for Frank Sinatra in 1966), the Dow fell 18.9%!

There was a personal happy ending for Mr. Drake. He co-wrote “Good Morning, Heartache” after a gorgeous model and show girl named Edith turned him down for matrimony, but over 30 years later, in the 1970s, both he and Edith were divorced, and Edith sought him out. They were married and lived happily ever after.

This brings us to “The Triumph of the Optimists,” sung to the tune of another female songwriter, Dorothy Fields, as in “Pick yourself up, dust yourself off and start all over again.” In studying 101 years of investment returns, roughly paralleling the lives of Swift and Drake, Elroy Dimson, Paul Marsh, and Mike Staunton found that world markets – plagued by wars and devastation – still multiplied about 162-fold in a century, while the U.S. market multiplied an astonishing 711-fold in the 20th Century, despite dismal decades like the 1930s

Triumph of the Optimists Cumulative returns image

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

Enough history. Let us return to the realities of 2020…

2nd Quarter — Worst GDP Decline Since Records Began

Since this weekly column is titled “Growth Mail,” I must quit this Pollyanna pulpit and musical memories and report on the worst GDP quarterly growth figures since record keeping began. The concept of Gross National Product (GNP), now known as Gross Domestic Product (GDP), did not exist in the not-so-fine-or-dandy 1929-32 decline, but those three years are generally considered the worst years in the century, with real GDP declining about 28% in three years and down 13% in the worst year (1931 to 1932).

Last Thursday, the Bureau of Economic Analysis (BEA) reported that the economy contracted at a 32.9% annual rate from the first to second quarter, a bit less than the -35% forecast by analysts polled at MarketWatch and the 53% forecast last June by the Atlanta Fed’s GDPNow model.

Previously, no quarter had ever contracted more than 10% on an annualized basis since the government began tracking GDP shortly after World War II. Spending on services – which were cut more, due to the need for social distancing in travel, tourism, and dining – declined at a 43.5% annual rate. The biggest increase, of course, was government spending. Federal spending rose by more than 17% last quarter.

GDP Decline and Governement Spending Chart Image

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

If you want to “Look for the Silver Lining” (a Jerome Kern song written in 1919, the year Ervin Drake was born, and a year of a major global pandemic, followed by a sharp recession and market crash), then a year of huge declines creates a vacuum and a low hurdle to overcome in future comparisons. That makes 2021’s year-over-year comparisons a slam-dunk for double-digit GDP gains – if we see only moderate levels of economic recovery. If we see the coronavirus disappear, 2021’s GDP numbers will be sizzling.

After World War I (1914-18), the Spanish flu (1918-19), a 46.6% stock market crash (1919-21), and a flash depression (1920-21), the stock market and real per capita GDP rose strongly from 1921 to 1929:

Per Capita and GDP Rise Charts Image

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

Through July 31, Nasdaq is up 19.76% in 2020, the S&P 500 is up 1.25%, and the Dow is down -7.4%. No promises, but after this year’s stumbling first half, we may see another Roaring 20’s ahead of us.

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
The Market is Much Weaker Outside of Tech

Sector Spotlight by Jason Bodner
Why My “Gut” Will Put Me in the Poorhouse

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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