historical perspective

About Those Good Old Days

© Can Stock Photo / Chuckee

A client recently expressed a desire to return to the good old days, when we didn’t have all this turmoil and trouble. Wouldn’t we all like that?

But we human beings have some quirks. One of them is the universal sense that, back in the misty past, things were normal, or stable. This idea may not stand up to scrutiny.

If we confine our study just to the economy and markets, the history we’ve lived through has this to say:

1. In the early 1970’s, a mania centering on big blue chip stocks hit the market. It was thought that you could just buy them at any price, and own them forever while they went up and up—“one decision stocks” they were called. Prices ballooned to extremely high levels. The major stock market averages peaked, then sold off more than 50%1.

2. The 1970’s also saw a pair of Arab oil embargoes that resulted in spiking gasoline prices, shortages, gas stations out of gas, and rationing. Over the course of the decade, inflation rose, eventually going over 10%. Unemployment went over 10% in the mid-decade recession2.

3. The early 1980’s began with back-to-back recessions, 15% mortgage interest rates, and inflation at unprecedented levels. The unemployment rate went over 10% again. Long term bonds declined in price as interest rates rose. A mania in oil stocks that began in the 70’s ended badly early in the decade3. The biggest one-day plunge in the Dow Jones Industrial Average ever—22% in a single day—happened in 19871.

4. The 1990’s began with the cleanup from the savings and loan crisis. The Federal deposit guarantee fund had gone broke, along with thousands of financial institutions. The value of housing, which began to fall nationwide in the late 1980’s, didn’t recover until 19924. The bond market suffered its first annual loss in seventy years in 1994.

5. Clients, most of you remember the bursting of the tech bubble in 2000, the attacks on 9/11, and the so-called Great Recession of 2008-2009. You already know the fine points; it was not good fun for investors.

6. The current decade, free of recessions so far, has had a lot of ups and downs. The downgrading of US Treasury debt and the recurring Greek financial crisis were two of the main events. The zero-interest-rate policy of the Federal Reserve distorted prices in some sectors of the investment markets, some observers believe.

The resilience of the equity markets over these many decades is astonishing to us. We had all these challenges and issues, and somehow the country came out on the other side, every time. We suspect this general trend will continue. The problems of today will give way to solutions– and new problems–tomorrow. That seems to be how it works.

In the meantime, financial strategies that have worked through the decades may be the best way to approach the future. There will be winners and losers in every change and challenge. We may not be able to get back to those mythical good old days, but we can make the most of what we have to work with.

Clients, if you wish to discuss this, or your situation, please email or call.

1S&P Dow Jones Indices, https://us.spindices.com/indices/equity/dow-jones-industrial-average

2Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, Unemployment and Inflation

3Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, Oil Prices

4Federal Reserve Economic Data, Federal Reserve Bank of St. Louis, Housing Prices


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Stock investing involves risk including loss of principal.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

The History of the Future

© Can Stock Photo / Tasfoto

One might say that the study of History as a formal endeavor began 2,400 years ago. Herodotus, the so-called Father of History, sought “to prevent the traces of human events from being erased by time” in his chronicles of the Peloponnesian wars. Herodotus used perspective, context, and narrative to relate the fruits of his inquiries.

These same techniques are the foundation of our work. Facts and data come at us as if from a fire hose, particularly in the digital age. Perspective and context help us determine what is significant and pertinent; narrative is how disparate events and trends and facts can be woven into an understandable story.

The future will be different from the past; the next decade will not be like the last decade. So how does history fit into understanding the future?

First, some processes of change seem to be universal, even though the particulars change. For example, the future may include an energy revolution in which solar technology and battery storage combine to usher in unparalleled access to cheaper energy. But water power and steam power and petroleum are simply earlier examples of energy revolutions which also ushered in unparalleled access to cheaper energy. Same song, new verse.

Second, many times what seems to be entirely novel is truly not. After 9/11 a client told us “never before have we been this fearful and afraid.” The same client, as an elementary teacher, had coached young children how to get under their school desks and cover up to mitigate damage from nuclear war. Remembering the history of the Cuban Missile Crisis helped keep the events of 9/11 in perspective.

Third, human nature persists through every age. History provides a rich tapestry of behavior in action. Thinking about investments, the Tulip Mania in 16th century Holland and the South Sea Bubble in the 18th century provided many clues to the growth mania and technology bubble of the late 1990’s. Those who knew this history, and applied the knowledge properly, had an edge.

My education includes a History degree. When I developed a greater interest in business as an underclassman, I read the Wall Street Journal and the Journal of Commerce every day in the campus library. Not wishing to extend my college years by changing majors, I persisted in the study of History. Now, I would be hard pressed to say which has been more valuable to clients —the reading in the library, or the History degree.

Clients, if you would like to discuss this or any other topic, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Times Have Never Been So Tough!

© Can Stock Photo Inc. / Jetrel

As humans, we’re generally self-centered by nature. We sometimes have an exaggerated sense of our own importance.

That’s not to say that there’s anything wrong with this. We happen to think that enlightened self-interest, with the understanding that the best way to make ourselves better off is through mutually beneficial cooperation, is an excellent principle to live our lives by. But sometimes it pays to keep the bigger picture in mind.

Our experience of the present century is one of turmoil. We’ve seen terrorist attacks of unprecedented scale, the biggest recession in a century, extremist political movements everywhere from the third world to the first world, terrifying epidemics, wars, natural disasters—the list goes on and on. In our egotism, it’s easy to fall into the trap of thinking that we must be living through the greatest crisis in human history.

In fact, we’re so stuck in the here and now of our lives that we’re willing to ignore evidence from our own lived experience—many of us have actually lived through just as many troubles before! The recessions of the 70s saw higher unemployment, lower growth, and vastly more inflation all while the Cold War raged on in the background. We know the 2008 crash was painful, but compared to lines at the gas station and 20% inflation things don’t seem so bad.

And yet, those of us who came of age during those troubled times still have nothing to complain about. Think of how our grumbling about gas prices must have sounded to the generation before us! They lived through the Depression and the rise of fascism, bled on the beaches of Normandy and watched the Iron Curtain descend. They saw a hundred thousand souls go up in nuclear fire and millions more die in the concentration camps.

Those that came before them had it no easier, either. The fact that the Great War’s casualties took place on the battlefield rather than in bombing campaigns and death camps would have been little solace to towns that lost an entire generation of young men, butchered by unprecedented machines of war and chemical weapons so terrible that not even the Nazis would stoop to using them.

Going back further there’s an almost infinite number of crises in human history we can look back to. Everyone thinks they’ve got troubles, and by and large they’re right. But as preoccupied as we are with our own troubles, we should strive to keep them in perspective. As it turns out, we have a once-in-a-generation crisis about once a generation. As a civilization we’ve gone through a lot of generations and a lot of crises and still kept going.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.