Market rally like the 1970s?
In the 1970s, a bear market was disguised by a series of market rallies. Some think a similar phenomenon might be occurring now.
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Passing through the airport in Washington, we noticed a bar. It was named “Harry’s Bar” or something like that. What caught our eye was the décor. It had beige stone on the walls…greens and browns…and sleek wood paneling. Just like the ’70s…Skip to next paragraph
Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning (dailyreckoning.com).
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And then, we noticed. Elizabeth had on a new outfit. There was something familiar about it. A flouncy sweater…jeans flared out at the pant leg…
“Yes, the ’70s are back in style,” she explained.
The politicos in Washington regard Carter as a failure. Yet, to us, he is still a hero. He was the only presidential candidate your editor ever voted for. And he turned out to be one of America’s greatest presidents. He didn’t push the nation to war or to bankruptcy. He left Washington and the nation more or less as he found them. What more can you ask for?
But Mr. Obama is no Jimmy Carter. On Obama’s watch the nation will take on about $5 trillion in extra debt. While Carter left the nation in no worse condition than it was when he took over the helm in 1977, Obama will leave it much worse off.
Of course, his idea that energy conservation was the “moral equivalent of war” was silly. But at least it was mostly harmless.
Besides, Jimmy Carter displayed enormous personal courage. First, he did a remarkable thing – he actually cancelled a pay raise for the military. Then, in 1979, Carter was fishing in Plains, GA, when his presidential boat was attacked by a giant, mad ‘swamp rabbit’ that tried to board without permission. Alone and unarmed, the president beat off the invader with an oar.
As far as we know, no other president has been similarly threatened…and none has shown Carter’s sangfroid under attack.
But back to the ’70s?
Probably not. The ’70s period was marked by stagflation, following the Johnson Administration’s big spending and Nixon’s elimination of the gold backing for the dollar. The CPI reached as high as 14% at one point. And Paul Volcker – a Carter appointee – fought it seriously…driving yields on the 10-year T-note up to 18% at one point. This was co-incident with a severe recession, and it got the job done. It turned around the bond market, the stock market, and the economy. The stage was set for an 18-year boom.
Today, inflation is not the immediate threat. Deflation is still the proximate problem. Here in England, inflation rates are going up. The papers whine that Britain’s middle-class is caught in a vise – between rising living costs and a punky economy. And sooner or later, inflation will be a major problem again – for Britain and America. Pundits argue about whether it will be sooner or later.