A non-political, completely investment-related look at this week’s Mueller Congressional testimony
Years ago, there was an old line that went something like this: “SEX…now that I have your attention, here is what I want to talk about.” Today’s political climate is like that. And, it has spread to peoples’ consumption of financial news. It is sizzle over steak, so to speak. Market history is often ignored. And, like the expression goes, those who ignore history are destined to repeat it.With Special Counsel Robert Mueller scheduled to appear before the U.S. House Judiciary and Intelligence Committees this Wednesday, it will be a media spectacle. But I don’t care about that. And for the purposes of this column, I don’t care about the politics either. As a rule, I leave that out of these pieces.What I do care about is the ever-present mission of everything I write in this space: identifying things about today’s investment environment that I believe are under-reported by mainstream financial market outlets. I want you to never have to say, “I wish someone had told me that.” In today’s edition of that mission, I looked back at another time in U.S. history where the conduct of a President (Nixon) had reached the point where a special counsel (Archibald Cox) investigation had been completed.
Forget the politics, this is about your money
Again, the politics are of no interest to me as an investor. But looking for similarities between that period of time and today is very important to me. Why? Because this type of survey of investment market history has been one of the most important factors in my ability to protect investor capital for over two decades.Here is a chart that summarizes the heart of the Watergate era from an investment and economic standpoint. The full period shown is from the start of 1973 to the end of 1974. The S&P 500 Index reached an all-time high following the 1972 re-election of Nixon. It peaked in early 1973, and through the Watergate hearings, the continued battles of the Vietnam War, and Nixon’s ultimate resignation on August 9, 1974, the financial world had a lot to deal with.
Market and economic impact
From top to bottom in the chart, we see that the S&P’s new high in early 1973 could not hold for long. As 1973 continued, the market slid at a fairly contained pace. However, that pace accelerated after the so-called “Saturday Night Massacre” later that year, and throughout most of 1974. By the end of 1974, the market had lost over 40% of its value from that early 1973 peak.The U.S. economy was on a roll in 1973, with GDP growth peaking at over an 8% annualized rate. However, the economy and the GDP quickly dove. Of the next 5 quarters, 3 were negative and one was barely positive. The unemployment rate bottomed at around 4.5%, and then started to climb, ushering in a difficult decade for job-seekers.Inflation was contained until 1973. The OPEC oil embargo changed that and spurred a ramp-up in inflation to the mid-single digits in 1973 and 1974. This was the beginning of a high-inflation period in the U.S. By the time the 1980s arrived, the CPI had just about doubled from its 1972 level. In other words, what cost $100 in 1972 cost about $200 in 1980.
Does this matter today?
Like I said above, history does not repeat exactly. And we certainly do not know if anything relevant to investing will come out of Mueller’s testimony this week. Furthermore, we don’t know if this week’s event will have any impact on your portfolio in the weeks, months and years ahead.However, there is one thing I do know: knowing market history, particularly in times of turmoil, political or otherwise, is what separates the temporarily successful investor from the sustainable successful one.
Because markets don’t care what your personal retirement plans are.I don’t know what will come along to end the period of relative financial peace and prosperity we have enjoyed the past decade. I do know that I’d rather be stockpiling my memory bank with what has happened in the past. Don’t be the one saying “I wish someone had told me that.”To read more, click HERE
Related: A Stock Market Cycle in Its Very Late Stages + the Possibility of One More Big Run Up