1929 vs TodaySubmitted by DeDora Capital on October 15th, 2015
by Will Becker, AWMA/AIF
A quick note on the markets, then on to a more historical perspective. Last week was the best week in the U.S. markets this year. Some of the enthusiasm comes from the mediocre-news-is-good-news cycle that we have been in for several years. Basically, here's how it works: "Hooray, the economy is still messed up - that means interest rates will stay low!" As I wrote recently, the employment picture calls for an interest rate hike; but inflation has not shown up to the party yet. Until it does, interest rates are unlikely to move very far/fast. A chart dating to Wednesday of this week shows that the S&P 500 recovering significantly from the dip of the past two months.
The historical perspective is on the familiar refrain "This time is different." Our industry likes to use this phrase, and it is typically followed by a chorus of historically minded folks pointing out the myriad of ways that history tends to repeat itself. The 2011 book "This Time is Different: Eight Centuries of Financial Folly" sums up a historical view pretty well. The Great Crash of 1929 is the benchmark of investing calamity, and Michael Johnston’s recent comparison of 1929 vs today illustrates the folly of taking this too far. Some pretty major things have changed since 1929.
Highlights paraphrased from Mr. Johnston’s article include:
- In 1929, Life expectancy for men was 58 years old; today it is 76.
- Influenza & Pneumonia were the 2nd leading cause of death.
- It took 33 hours to fly to Europe (and asking fishermen for directions); today there are 150 daily flights that take about 8 hours to get there.
- There were no IRA/401k accounts.
- Alcohol was illegal, thanks to Prohibition.
- We subsequently added territory the size of Germany & Norway combined through the addition of Alaska & Hawaii.
A particularly powerful comparison from the article:
History can repeat itself... but typically not exactly the same way. The financial news media can get caught up on comparisons to extreme events, so let's also keep in mind what has happened since the investing calamity that was 1929. For example, we now have Penicillin, Ibuprofin, and Social Security.
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