“let me assert my firm belief that the only thing we have to fear is fear itself”
Franklin D. Roosevelt, March 4, 1933
With all the news coverage this month of the stock market slump there is a rising comparison with historical events. Notable are the comparisons with 1931 which was when we were in the midst of the Great Depression. Current events certainly lend themselves to shocking headlines with fearmongers like Jim Cramer piling on the bandwagon with comments like, “It’s not a safe market. It’s a treacherous market. This is the most treacherous market I’ve seen in a many a year.” While probably true, this narrative is more ‘click-bate’ than substance. Sad are the masses feeding from Facebook feeds with nary a thought towards deeper analysis.
After all these years historians remain at loggerheads as to the cause of the Great Depression, however to equate current events with history is misguided at best. The common denominator is only that Hoover, Bush and Trump represent the Republican party.
Sivaram Velauthapillai penned a great thesis in 2009 laying out a case as to the differences between the Great Recession and the Great Depression. In my view, the key points pertaining to the markets in the Great Depression were:
- During the Depression there were two 100% market rallies
- Dollar cost averaging mitigated losses for some investors
- Currency liquidity was not increased
- Maintaining the Gold Standard tightened money supply
The first two notes are only points of interest, the third point was not repeated in the Great Recession (TARP) and fourth, Nixon (another Republican) removed us from the Gold Standard in 1971.
Another Great Depression issue was Hoover remaining steadfast in cutting spending to maintain a balanced federal budget which (combined with a tightened money supply) contributed to his current day image as an uncaring soul and a lasting legacy of “Hooverville” shanty towns.
Fast forward to 2018 – while there are a few similarities with past crises these (my opinion) do not yet rise to levels where alarm bells are ringing. Caution is warranted particularly on the trade and political fronts. Uncertainty is the bane for business and commerce and this has been presented in abundance. The market, being a reflection, has responded in kind ignoring some basic fundamentals while emotion – and fear – run amok. Trump-towns aren’t a blip on my radar – yet.
The S&P has lost 12.45% of its value so far this month. Even with an overweight in regional banks my portfolio lost 10.87% so far in December. These are only paper losses and the strength I see are dividend increases announced thus far for 2019 outweigh the few decreases. Yes, Virginia, there are some positives lurking in the shadows.
Have a Merry Christmas and a Happy Holiday Season!