Current Investment Themes–De Ja Veux All Over Again!—Yogi Berra.
Apocalypse Now. In evaluating the current market conditions, we believe significant parallels between 2018 and 1979 exist causing a period of extreme volatility for the coming months. During the 1979 to 1981 period, interest rates spiked from 7% to 14.5% on the 30 year US Treasury Bond. Gold rose in price during this period from $35 an ounce to over $800 an ounce. It was in October 1979 when the Hunt Brothers from Fort Worth attempted to corner the market on Silver forcing the Federal Reserve to facilitate its only loan to individuals to avoid the collapse of the US banking system. Many of the geopolitical events in 1979 resemble many of the events that we have witnessed in the last several years. The names have been changed, the circumstances are different. Yet, the turmoil of the late 1970’s distinctly resembles the turmoil we are now experiencing.
The Muppet Movie. In October 1979, Jimmy Carter hired Federal Reserve Chairman G. William Miller to be the U.S. Treasury Secretary even though inflation was accelerating as the misery index exceeded 20% (Inflation plus Interest Rates). The New York Federal Reserve Chairman Paul Volker became Fed Chairman and immediately raised interest rates and began unwinding the Treasury holdings that Miller has accumulated which promoted growth and inflation. Since 2009, the Federal Reserve accumulated $3.8 trillion in U.S. Treasury securities to promote growth, but the inflation remains tame. As rates have risen several times in the past 2 years, some optimism exists that we have normalized interest rates.
Mad Max. Ironically, Iran became the USA’s greatest enemy in 1979 as the Ayatollah Khomeini took over the USA embassy and held over 50 hostages until early 1981. Now we see Iranian issues today as new sanctions have been implemented as nuclear bombs are being developed in Iran.
The Jerk. Just announced this week the US and Russia will have a summit in July. In the 1970’s, the Cold war was in full swing. Russia was still an evil empire as Krushnev and Breshnev were the two leaders that killed Christians and Jews from the 1930’s on as Russian human rights were terrible. Jimmy Carter and Breshnev signed the SALT II agreement which supposedly said that both superpowers would reduce nuclear missile weapons. More recently Russia under Vladmir Putin militarily took the natural gas port of Crimea from the Ukraine in 2014. No one stopped him, neither Europe or the USA. Since 2014, the mini-Cold War has cooled more. Great attention has been given as some believe Russia tampered with our last Presidential election. Who knows.
The Warriors. Interestingly enough, the upstart ESPN in 1979 is now the most profitable segment of Disney Corporation’s empire. ESPN controls college football among other things. It was originally started to basically broadcast old college football games. American Broadcasting Corporation paid $188 million to acquire ESPN. Eventually, Capital Cities/ABC was bought out by Disney for $19 billion in 1995. Several leading investment firms estimate that ESPN could fetch $40 billion today if Disney was so inclined to sell.
Rocky II. Britain, or the UK, elected Teresa May as the second Lady Prime Minister in July 2016. In May, 1979 Margaret Thatcher became the UK’s first Lady Prime Minister. The Iron Lady was Ronald Reagan’s closest friend and ally during the 1980’s. Both were able to promote growth and prosperity for most of the 1980’s as interest rates began the sharp descent from historical high levels in the early 1980’s. Bull Markets in bonds and stocks began in 1981 and 1982 respectively as the inflation induced recession came to an end. Teresa May’s leadership brought the vote for the UK to leave the European Union.
The Amityville Horror. The Dow Jones Industrial Average (DJIA) reached a high above 1,000 in 1969. Three different times, the DJIA traded between $550 to $1053 from 1969 through 1981. In August, 1981 interest rates began its long journey lower as the greatest bull market in bonds started. In April, 1982 the stock market bottomed never to look back.
Kramer vs. Kramer. Peace in the Middle East is a historical oxymoron. To his credit, Jimmy Carter hammered out a peace agreement between Israel and Egypt. Today, Israel remains the target from all over the Middle East as Iran still threatens to blow up Israel on a weekly basis. More recently, the USA recognizes Jerusalem as the Capitol of Israel antagonizing the Muslim world.
Escape From Alcatraz. More recent trade wars between the USA and pretty much the rest of the world has awakened global interests that tariffs can be applied on an equal basis. Ultimately, if tensions escalate between our trade partners then some meaningful damage can be inflicted on all parties involved. Most of the European and Japanese auto companies have a significant number of USA manufacturing facilities. China imposes stiff tariffs on products coming into its country. China is guilty of supporting its own state run businesses and stealing our intellectual properties. China owns approximate $2.5 to $3 trillion of our U.S. Treasury debt. An escalating trade war could lead to the selling of bonds which would weaken bond prices and raise yields.
Alien. Suffice to say, the world was complicated in 1979 as it is now. Between last year’s Total eclipse and the 1979 eclipse, many believe that astronomical events can have effects on the financial markets. We are not sure. But, it is interesting that so many destabilizing events have occurred in the past couple of years that point back to 1979 when inflation rose, interest rates rose and stock prices dropped
We continue to believe that conservative investments will weather the financial storms that may arise. We consider a privilege to serve you as your investment advisor and look forward to hearing from you.
Russell L. Robinson
Robinson Investment Group
5301 Virginia Way, Suite 150
Brentwood, Tennessee 37027
Subtitles from top 10 list of 1979 Movies. https://www.ranker.com/list/best-movies-of-1979-v1/ranker-film