The Prudent Retiree - May 2017

“Meet the New Boss, Same as the Old Boss.”

          -The Who -  Won’t Get Fooled Again

The Who was one of Rock’s supergroups from the 60’s and 70’s. Their songs spoke to that generation. It was a time of turmoil at home and in the world. Wars, economic uncertainty and political unrest. Sound familiar?

Many are predicting that President Trump’s recent travails with Russia and former FBI Director Comey will be his Watergate and he’ll suffer President Nixon’s fate. The concern is the ensuing chaos will cause a market crash.

Current politics is not our concern. A look at economic conditions between then and now can be helpful in assessing the health of the market and what we might expect.

Watergate began in October of 1973. So-called Comeygate is just beginning. The underlying economic backdrop is starkly different now than in 1973. In 1971, Nixon enacted wage and price controls, import restrictions and ended the dollar’s fixed convertibility to gold. The result was a sharp devaluation of the dollar and a quadrupling of oil prices. Inflation surged to 12% and unemployment hit 9%. The Fed raised the federal funds rate to 13%.

These economic measurements are a far cry from now. Unemployment is down to 4.4%. Inflation is 1.9% and the federal-funds rate is 0.75-1.00%. The dollar is strong and oil prices are low. These economic conditions are favorable for stock prices.

Yes, the politics are toxic- then and now. The Who sang “History ain’t changed” and history says economics, not politics drives the market. By the way, the market fell more than 50% from the beginning of 1973 to the end of 1974. The calendar says 2017, not 1973.

 

Forsyth, Randall W. "Trump, Nixon, and the Economy." Financial Investment News - Stock Investing News - Investment News - Barron's. Dow Jones & Company, 13 May 2017. Web. 13 May 2017.

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