What is much more troubling about the nostalgia is the prospective economic similarity of 1977 to 2009. Our economy has small cycles and large cycles. The small cycles are the relatively routine 4 year periods of expansion/recession. Since 1900, we’ve had, in general, 3 years of economic expansion, and one of contraction. Not always, sometimes we skip a recession, and sometimes we have a bigger one. But in general, that’s the cycle. There’s a bigger cycle as well (and some may argue, an even bigger one on top of that, named after a guy called Kondrieff). The bigger cycles are the cycles of secular bull or bear markets. An example of a secular bull market is the run from 1981 to 2000, where the S&P 500 gained 1736.82 % in total or 15.66% per annum. You don’t see a bull like that very often. The big bulls usually have some economic stimulus (like a tax cut), some global stimulus (like the end of a war), and something technological (like the development of a computer or the Internet).
Secular bears follow the bulls (and I suppose they lead them as well). A secular bear market is when the market fights between two extremes without ever getting out of them. For example, the Dow gained exactly 58.88 pts between 1968 and 1980. To be sure, it went up (and down) but started and ended at virtually the same spot. Bears usually have attributes like budget deficits (the 1977 deficit was $66B, compared to our current deficit of about $170B. Click HERE to see the budget), rising commodity prices, compelling social issues with expensive fixes (in 1977, Carter basically quadrupled the social security tax), and a general lack of consumer confidence. Our consumer confidence level is at a 5-year low, and the expectations index is at a 35-year low, the worst since 1973.
So my point? Well, here’s my laundry list of observations:
- We have a national health care crisis, without any non-painful means to pay for it;
- We have a vast loss of higher-paying manufacturing jobs (there were about 17.7M manufacturing jobs in 1990, about 13.8M now);
- Global commodity demand is causing dramatic increases in commodity prices.
- We’re in a war that probably won’t end any time soon (I’m talking about the war on terrorism, not Iraq, which probably also won’t end soon).
- We have budget deficits and a national debt of about $9.4 trillion (to see the number on the National Debt clock, click here). The interest on the national debt for 2007 was a mere $429,977,998,108.20 for 2007.
- We have an eminent tax increase by 2010, regardless of the next president.
Up, down. My prognosis is bears in the woods. We’ll have opportunities to make money (there are always opportunities to make money), but it won’t be pretty, and won’t be pleasant. Especially to whoever gets to be president. Maybe Mitt did OK after all.