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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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It was the first time that he lost money growing wheat on the spread near BillingsTHE BULL MARKET OF THE 1980S AND EARLY 1990S? As a recession ended in 1982, the Dow rallied from a low of 776.92 on August 12 to 1070.55 by December 27, a 37.79% increase. This signals a turning point for the Dow and the beginning of that spasm of the dominant investment system often referred to as the Great Bull Market of the Late Twentieth Century. The Dow blundered upward through its first significant new high in 16 years7 to post a 27.66% return in 1985. The excitement this caused on Wall Street was not shared by Main Street. Investors sought vehicles that would lower income taxes and capitalize on inflation. It was oil and gas or real estate investments that the well-heeled who came into our offices in the 1980s demanded. We could barely get them to consider stocks and hardly blamed them. From 1970 to 1974 stocks returned an annual average rate of -2.36%. From 1973 to 1977 the average annual return was -.21%.8 Investors patience for the market had worn thin. A quote from Venita Van Caspels best-selling financial planning book of the decade sets out the limits of tolerance most people had for the Dow: In my opinion, selected common stock equities will be a viable choice, intermittently for around 25% of your investment dollars during the decade of the eighties.9 Couples would parade into our Florida offices in high season dressed in matching white tropical shirts and slacks, the men with gold Rolexes and the women with tennis bracelets. They had stepped from a luxury car it, too, had to be white to complete the effect with an interior that matched a scarf, usually worn by the woman. This peacock-like display was meant to advertise their killing in real estate up north or the big score from oil out west. They would buy their winter golf course home, then bring us the remainder to be invested in annuities, life insurance, or tax shelters. We would use quotes from Van Caspels book to promote the advan tages of owning stock, but we could seldom get them close to her 25% recommendation. Five to ten percent would be about it. There is another story to tell. More accurately, it is the absence of a story that is remarkable. We did not see a single middle- to upperclass working person under 60 who was interested in any form of investing. This excerpt from a January 1983 article in Duns Business Month will explain why: Whats more, the official figure of 10.8% joblessness, which translates into 12 million people out of work, is a considerable understatement. It takes no account of the nearly 2 million discouraged workers, so disheartened they have stopped looking for employment, or of 6.6 million part-time workers who want full-time jobs. Add in those people, says Allen Sinai, senior vice president of Data Resources, Ind., and the number working less than they want or not at all comes to 16.2% of the labor force. And fewer than half of those counted as unemployed are receiving jobless benefits.10 Add to the depressing job climate exorbitant home mortgage rates:11 198013.42%198512.27%198116.31%19869.91%198215.30%198710.16%198313.11%198810.49%198413.81%198910.24% The American dream was in grave danger. People were losing their homes, and it was not just the industrial white- and blue-collar workers who were in trouble: Last year was a bad one for Bud Leuthold. It was the first time since 1972 that he lost money growing wheat on the 4,000-acre spread near Billings, Mont., that his grandfather first farmed in 1910. Leuthold believed this year would be different. He was right: Its worse. Declining exports, expectations of bumper crops, and uncertainty over the Reagan Administrations farm policy have pushed commodity prices to their lowest levels in more than two years promising to touch off yet another crisis when farmers sell their harvest this fall. A third of us are broke, and a third are going broke, says Leuthold. The rest will be going broke real soon.12 For the first time in U.S. history people were saying that parents should prepare their children for a standard of living beneath their own. Inside the financial world things were no better. Stories of fraudulent S&L schemes were circulating in 1983, and by the end of the decade a bailout of the S&L industry cost the taxpayers billions. Companies too weak or lazy to be productive found a solution in illegal junk bond deals. Insider-trading scandals landed some prominent Wall Street figures in jail. The rank and file, represented by labor unions, share the blame for the disintegration of American industry. Companies that were doing their best to be productive were often shackled by outdated contracts and forced to submit to wasteful featherbedding. The strike against the Washington Post in the mid-1970s set a standard for union arrogance that was replicated by other strikes during the 1980s. While portraying themselves as victims, some union members were gorging themselves at a trough that had been filled by hard-working laborers and craftsmen before them, which these victims refused to take their turn in replenishing. Some bull market from disgruntled blue- and white-collar workers to cynical wealthy investors, dissatisfaction with corporate America was pervasive. And how does human nature react when faced with difficulties that are at least partly self-inflicted? By blaming someone else. The Japanese, with their buoyant economy and soaring stock market, were perfect targets. Japan was building better cars, delivering manufactured goods at cheaper prices, and buying U.S. companies and making them profitable. In the second half of the 1980s commentary like this appeared in every magazine and newspaper: Despite all the negotiations, the U.S. trade deficit with Japan is soaring and theres no end in sight. The Japanese are pouring their goods into the U.S., and a dangerous perception gap between Japan and the U.S. is widening.13 The Japanese were going to own America. There was no telling what would happen. This fear burned itself like a stick of dynamite into the American consciousness, and the explosion was ignited by the market crash of 1987. They called it a meltdown. The Dow collapsed 22.6% in one day. It fell to 1738.74 on October 19, 1987, nearly 1,000 points from its high of 2722.40 seven weeks earlier. Today that would be like losing over 2,000 points in one session. Stocks did not fall that much even when the World Trade Center was attacked. During those dark days in the fall of 1987, hysterical investors kept our phones ringing 18 hours a day. Of course our stoic Mr. C., who would not be caught dead in either white tropical slacks or the matching white luxury car, was calling to let us know that he would be sending more money to his account and that he hoped we would fine some bargains which we did. But even Mr. C.s optimism was about to be destroyed. The Dow recovered from the 1987 crash, but investors did not. It was one more nail in the coffin of confidence in the U.S. economy. By 1988 the conventional wisdom held that the United States had forever lost its grasp on economic power. The final straw that had Mr. C. on the phone to us before sunrise on a morning in 1989 was the purchase of the 19 buildings of Rockefeller Center by the Japanese company Mitsubishi. That a foreign country would own this symbol of American industry and financial power crystallized for many the disappointment and disillusionment that had prevailed since 1970. In a large dining room in 1990, in a very large home overlooking the Gulf of Mexico, the table conversation during the entree focused on how the tax law changes had eliminated millions of dollars of writeoffs. By the time we got to the cognac, the more villainous event became the falling inflation rate, which translated into falling rates of appreciation necessitating the sale of ski resorts, cattle ranches, and duck marshes. The proceeds would be used to buy gold, commodity contracts, and maybe some annuities definitely not U.S. stocks because those silly computers were desecrating the honest work of America, which was building bigger refineries and forging more steel (take it, make it, break it). In a very large boardroom in 1991 in an office building tall enough to allow a view of the cruise ships drifting like icebergs into the Port of Miami, the executive sitting next to me announced that there was no way he would allow his companys $180 million pension plan to own U.S. stocks. High-tech is destroying American industry. Pretty soon well just be selling hamburgers to one another, he said. Treasury bills were okay, guaranteed insurance contracts were okay, and we must invest in foreign stocks, especially Japan. During a 1992 seminar for the rank and file on 401(k) investing on the floor of a manufacturing plant in Lexington, Ohio, questions from the audience centered on how soon we thought technology would put all of those at the meeting out of work. Isnt that why unemployment was so high? No new jobs. No new skills to learn. No room for advancement. This group was convinced that they would be the ones frying the hamburgers. The thread that connects this diverse group of pessimists was that a second culpritas bad as the Japanese had emerged: new technology. The myth that it was destroying American jobs and ruining the economy was spread by the entrenched interests of what was by then the outdated dominant investment system. (Today this myth takes a new form. A company whose business involves the Internet is a dotcom with no solid foundation. This view holds that a stock with a high price per earnings ratio, using new technology to employ new business strategies, is just a gamble.) Get back to basics was the inane prescription for a more productive business climate. The fact that the basics were not doing so well could conveniently be blamed on the Japanese. The truth was that by the early 1990s, spineless managers who did little to create the golden goose that they had been living off of and arrogant labor union tactics had done much to smother productivity. Investors often ignored the fact that some companies and their union members (e.g., Nike) decided in the early 1990s that they must work together to toss out old systems. Heavy expenditures on new technology were viewed as just another drain on earnings that would keep stock prices from rising. Most people were not considering the positive impact that this visionary restructuring would have on future growth. Just like today, the impact on productivity that digital technology would have on the economy and the stock market was ignored by the vested interests of the old dominant investment system. This meant that from 1990 to 1994 the financial commentary read like this: New York has been displaced as the model of market stability.14 By 1994 doom and gloom was pervasive: [Robert] Prechter now recommends putting not a penny in stocks except precious metals. Hes predicting a multi-year bear market with the Dow losing 90% within the decade.15 Likewise, a Forbes article pointed out that a lot of smart money thinks this is another one of those times to be long commodities.16 In another article from that issue, Charles Allmon stated, Youre looking at the most over-valued market in this century. This thing could decline 50% from its high.17 On January 17, 1994, USA Today quoted market-timer and noted financial newsletter writer Arch Crawford as saying, Id sell stocks now. The current status of the market is almost equivalent to the San Francisco earthquake.18 What seemed to be important in 1994 was for investors to understand that the dual evils of technology and foreigners had conspired against the U.S. financial markets in preventing stocks from rising any further. This assumed that we all bought into a fiction in the first place that a bull market that raged through the 1980s and early 1990s had made us all rich and that we should now be grateful. That by 1994 it was time to take our money off the table and batten the hatches was the majority view of the card-carrying members of the old dominant investment system. To say their conclusions were wrong, that they totally missed the mark, does not begin to cover it. There was a border between 1994 and 1995, and the contrasts before and after were as stark as those between East and West Germany on either side of the Berlin Wall, the last bricks of which were toted away in the early 1990s. On the 1994 side were the dour faces of fatalistic citizens, resigned to picking their way around economic potholes and conducting their lives as best they could. It was hard to distinguish how much of the gray atmosphere was generated by the mood of the population and how much was the result of industrys gorging on resources and belching dark fumes into the air. Prosperity was reserved for an opportunistic and cynical few, grabbing their share of a shrinking pie. After crossing the border into 1995 it was as if we were in a new country. Suddenly, the atmosphere was buoyant. There were opportunities instead of problems. The air was clearing enough to see an exciting future. One writer commented, My favorite septuagenarian says hes never seen such a stampede for stocks among the popular pundits of the financial press.19 Apparently the experts were not even a little embarrassed by the total reversal of their prognostications. By 1996 the covers of financial publications were filled with headlines such as this:20 A new type of investor was coming into our offices. They did not want gold, commodities, or tax havens. They wanted to own U.S. stocks. They wanted growth. They wanted to share in the expanding economy. They heard about exciting new services and technologies, and with complete confidence in American business they were willing to wait years for their payoff until the promise could be fulfilled. They had no time for putting on airs. They were busy with their careers or were working at companies. Some were busy starting new ones, buying or selling others. They were of all ages. |
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