How inflation was supposed to destroy the stock market.
August 13, 2019 was the 40th anniversary of a BusinessWeek article, “The Death of Equities.” This article talked about the Labor Department ruling that allowed pension fund money to “go into listed stocks and high-grade bonds, but also into shares of small companies, real estate, commodity futures, and even gold and diamonds.” According to the article, this ruling, along with other factors over recent years, was going to destroy the stock market as we knew it.
Here are some truths we can infer from this article forty years ago:
1 - Equities did not die, and the world did not end.
The S&P 500 closed on August 13, 1979 at 107.42; as I write it has closed close to 2,918. The dividend in 1979 was six dollars; it is currently running at an annual rate approaching $56. Inflation is up barely 3.5 times.
2 - Real GDP did increase.
U.S. real GDP in 1979 was well below $7 trillion; it is today running at about $19 trillion (in 2012 dollars). Real GDP per capita went from $31,000 to $57,500.
3 - The BusinessWeek article, condensed into four words: This time is different.
In point of actual (long-term) fact: this time is never different. It just looks different— as it looked 40 years ago.
4 - Financial journalism’s main disease is that it always speculates.
Financial journalism says, “This is how things are right now; therefore this is how they’ll remain into the distant future, if not forever.” This is always wrong.
5 - What fuels financial journalism and always has and always will, is negativity.
In fact, optimism remains the only realism; it is the only worldview that squares with the facts, and with the historical record.
So, keep this in mind the next time you read a sensationalized article in recent news that deems the end of the financial world is coming. They said it was the end in 1979, yet here we are today, better off than we were then and still not 100% certain of tomorrow.
Joseph F. Falbo, CFP®, AIF®, CRC® is an independent LPL financial advisor that helps grow and preserve clients’ wealth using cutting edge, customized, and comprehensive strategies. With over two decades of experience, Joe helps clients to pursue and retain the lifestyle they want in retirement. To discuss your retirement goals or any financial topic you want, schedule a 20-minute complimentary call. To learn more about Joe, please visit falbowealth.com.
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