WEBVTT - At the Money: Is War Good for Markets?

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<v Speaker 1>War in the Ukraine and the Middle East, inflation spikes

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<v Speaker 1>in twenty twenty and twenty one. What is the financial

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<v Speaker 1>impact of global conflict and rising prices?

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<v Speaker 2>The answer might surprise you.

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<v Speaker 1>And I'm I'm Barry Ridults, and on today's edition of

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<v Speaker 1>At the Money, we're going to discuss whether war and

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<v Speaker 1>inflation somehow adds up to higher portfolio prices. To help

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<v Speaker 1>us unpack all of this and what it means for

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<v Speaker 1>your investments, let's bring in Jeff Hirsh. Not only is

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<v Speaker 1>he the editor in chief of this stock Trader's Almanac,

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<v Speaker 1>he is the author of the twenty eleven book super Boom,

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<v Speaker 1>Why the Dow Jones will hit thirty eight eight twenty

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<v Speaker 1>and How you Can Profit from It. Full disclosure, I

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<v Speaker 1>was privileged to write the forward to that book, and

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<v Speaker 1>I have been delighted to see it more or less

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<v Speaker 1>come true. So let's start with your dad, Yale Hirsh,

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<v Speaker 1>who founded the stock traders Amanac sixty years ago. In

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<v Speaker 1>nineteen seventy six, he predicted a fifteen year super boom,

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<v Speaker 1>a five hundred percent move in the stock market. At

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<v Speaker 1>the time, it wasn't especially well received. In fact, it

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<v Speaker 1>was fairly widely mocked. But not only did he turn

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<v Speaker 1>out to be right. By two thousand, the move was

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<v Speaker 1>one thousand percent. Explain your dad's thinking about how war

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<v Speaker 1>plus inflation equals a stock bull market.

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<v Speaker 3>Well, I was a wee lad back then, but I

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<v Speaker 3>remember the T shirts that now thirty four to twenty

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<v Speaker 3>T shirts. I still have a box of mediums in

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<v Speaker 3>the past, but my kids can wear it, but not me.

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<v Speaker 3>So coming off the the you know, generational low in

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<v Speaker 3>nineteen seventy four that everyone knows, which.

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<v Speaker 1>Was seventy three to seventy four band market was as

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<v Speaker 1>vicious as the financial.

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<v Speaker 3>As seven awight, as vicious, and perhaps more so because

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<v Speaker 3>it was a little bit fresher.

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<v Speaker 1>It was.

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<v Speaker 4>It was a little bit.

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<v Speaker 1>It was also in the middle of a long bear

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<v Speaker 1>market as opposed to coming off of market highs.

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<v Speaker 3>True, we had been coming down for a few years,

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<v Speaker 3>but in sixty six or sixty eight, depending upon where

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<v Speaker 3>you went to. Yeah, yeah, But what he observed looking

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<v Speaker 3>at at history long history, being a student of the

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<v Speaker 3>four year cycle for year president election cycle and the

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<v Speaker 3>decentil patterns, and having you know, written the almanac for

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<v Speaker 3>several years, and just being an avid researcher. He's discovered

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<v Speaker 3>that after war and you know, we're in the Vietnam War.

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<v Speaker 4>We were just coming out.

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<v Speaker 3>We had the April seventy five coming out of you know, Saigon,

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<v Speaker 3>that horrific you know, steamed with the helicopters over the

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<v Speaker 3>end of remembers, and we had, you know, the oil

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<v Speaker 3>embargo which you and I probably both remember, the odd

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<v Speaker 3>and even, And what he observed was that after these

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<v Speaker 3>previous big you know, international conflagrations war World War One

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<v Speaker 3>and World War Two, that after this this war period,

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<v Speaker 3>there was inflation stimulated by government spending, and then after

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<v Speaker 3>the inflation leveled off, the market went into this rally

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<v Speaker 3>of five hundred percent or more following war excision.

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<v Speaker 1>That's more than a rally, that's a full blown bull market,

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<v Speaker 1>five hundred secular. So I'm glad you use that term

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<v Speaker 1>to different than a shorter term cyclical market within a

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<v Speaker 1>longer term secular. So what were the numbers like after

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<v Speaker 1>World War One and after World War Two?

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<v Speaker 3>The numbers it was about just around five hundred and

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<v Speaker 3>seventeen five twenty one right in the just over five hundred.

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<v Speaker 2>Percent both following both wars.

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<v Speaker 3>Following both wars unbeknownst to him, after the Vietnam War

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<v Speaker 3>and the inflation that came from you know that.

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<v Speaker 2>That vol fargo and all rest and all the rest.

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<v Speaker 3>It ended up being the better part of fifteen hundred

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<v Speaker 3>and two thousand percent going all the way up to

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<v Speaker 3>the top in neither ninety eight or two thousand if

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<v Speaker 3>you want to measure it to there. His forecast, his

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<v Speaker 3>prediction was for dow thirty four to twenty by nineteen ninety.

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<v Speaker 2>That was five hundred percent from from the beguits.

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<v Speaker 3>From the inchry day low of the Dow on December sixth,

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<v Speaker 3>of memory serves, nineteen seventy four. And the Dow didn't

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<v Speaker 3>actually hit that number until it was July of nineteen

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<v Speaker 3>ninety two. But the SMP had the five hundred percent

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<v Speaker 3>move and like that it was May of ninety ten.

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<v Speaker 2>And that's really the more important July.

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<v Speaker 4>Nineteen ninety It did it in nineteen ninety.

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<v Speaker 3>So, you know, I remember when you and I were,

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<v Speaker 3>you know, talking about the forward, and I had showed

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<v Speaker 3>you the old you know, newsletters that he that he

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<v Speaker 3>put up called smart money back then. And in January

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<v Speaker 3>seventy seven he put out a special report called invitation

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<v Speaker 3>to a super boom, which was you know, taking all

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<v Speaker 3>of the research that had been done and the articles

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<v Speaker 3>that were written throughout seventy six and putting in together

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<v Speaker 3>a little package to you know, give to subscribers and

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<v Speaker 3>to promote what he was talking about there, and we

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<v Speaker 3>put those pictures in there. You know, he's got some

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<v Speaker 3>hand drained lines on the old you know overhead projector

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<v Speaker 3>you know, transparency. And then you know, as we were

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<v Speaker 3>going through the financial crisis seven o eight, also looking

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<v Speaker 3>back to the the two nine to eleven situation and

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<v Speaker 3>then go into Afghanistan and all that stuff. Looking at that,

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<v Speaker 3>we were tracking this this you know, long secular bear

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<v Speaker 3>market pattern, and you know, after the bottom in nine,

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<v Speaker 3>you know, we're looking at things in early twenty ten,

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<v Speaker 3>we're saying this is setting up again.

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<v Speaker 1>Coming out of the financial crisis of fifty six percent

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<v Speaker 1>peak to trough sell off. You're looking at what just

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<v Speaker 1>took place. We've been in Afghanistan really soon after nine

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<v Speaker 1>to eleven, it's almost a decade. And then around the

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<v Speaker 1>same time, we've been in Iraq for about seven years.

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<v Speaker 1>We had a bout of inflation in seven eighth nine.

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<v Speaker 1>What are you thinking when you look out over the

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<v Speaker 1>next fifteen years. From the perspective of twenty ten, twenty eleven, we.

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<v Speaker 3>Weren't looking out initially fifteen years. What we were witnessing.

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<v Speaker 3>What we were observing was a similar chart pattern.

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<v Speaker 4>It was. It was chart pattern recognition.

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<v Speaker 3>Looking at the image that you know you've seen in

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<v Speaker 3>the book of Yale's chart and seeing the same thing.

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<v Speaker 1>That's one hundred year chart that shows you war inflation

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<v Speaker 1>and several five hundred percent.

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<v Speaker 3>I think I think Josh called it, you know, the

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<v Speaker 3>greatest chart you know he's ever seen, or ever was

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<v Speaker 3>something like on Earth or something like that at one point.

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<v Speaker 3>But it's it's a log scale, so you can see,

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<v Speaker 3>you know, the moves relative of the different time frames.

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<v Speaker 3>But looking at that, you could see it setting up

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<v Speaker 3>again coming off the the nine bottom. We just you know,

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<v Speaker 3>crunched numbers, did research, went back and you know, read

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<v Speaker 3>all the old stuff that he wrote, went through the

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<v Speaker 3>old almanacs, and we're like, this is happening again.

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<v Speaker 1>So let's let's take this apart and see if we

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<v Speaker 1>can rationalize why this might happen. In the past, governments

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<v Speaker 1>have talked about the peace diven end when the Berlin

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<v Speaker 1>Wall came down as an example. The shift of government

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<v Speaker 1>spending from the military and the Pentagon to civilian usage.

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<v Speaker 1>Is that part of the thinking behind this.

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<v Speaker 3>It does play a part, you know in there, but

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<v Speaker 3>the spending from the war, and I think this time

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<v Speaker 3>around the COVID spending is similar.

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<v Speaker 4>It's government spending period.

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<v Speaker 3>It just puts a lot of money into the economy,

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<v Speaker 3>enables a lot of development.

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<v Speaker 1>You're totally anticipating my next question, which which is how

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<v Speaker 1>parallel is the war on COVID, the pandemic, lockdown, pent up, demand,

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<v Speaker 1>terrible sentiment, carestacked one was ten percent of GDP. We've

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<v Speaker 1>spent four depending on whose numbers you rely on, four

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<v Speaker 1>or five, six trillion dollars inane and then we have

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<v Speaker 1>a giant nine to ten percent spike in inflation COVID

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<v Speaker 1>plus inflation.

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<v Speaker 2>How parallel is this to what so.

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<v Speaker 1>Following World War one, World War two, and Iraq in Afghanistan.

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<v Speaker 4>I think it's it's incredibly parallel.

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<v Speaker 3>One of the things that that the current cycle didn't

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<v Speaker 3>have from the previous cycles was the inflation we had very.

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<v Speaker 1>Long, like a little bit during the very Lember, oil

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<v Speaker 1>ran up to one hundred and fifty barrels and meat,

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<v Speaker 1>but it didn't milk got crazy expenses, but it didn't.

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<v Speaker 3>Come through to the you know, the regular CPI, you know,

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<v Speaker 3>minus food and energy.

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<v Speaker 1>Because housing appeared to be disastrous, so that was why it.

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<v Speaker 1>By the way, there's a crazy thing about owner's equivalent

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<v Speaker 1>rent that when real estate prices go up, depending on

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<v Speaker 1>the circumstances, sometimes OEER goes down dramatically, especially when rates

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<v Speaker 1>are low, and they'll give anybody a mortgage.

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<v Speaker 3>So CPI, which happened back in COVID. Who didn't refinance

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<v Speaker 3>the US government?

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<v Speaker 4>Right? We all the rest of us did.

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<v Speaker 2>That's exactly right.

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<v Speaker 1>So how much of this is sort of like a wartime?

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<v Speaker 1>You know, there was rationing, there's supply chain issues, there's

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<v Speaker 1>a ton of pent up demands and a lot of

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<v Speaker 1>negative sentiment, and then when.

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<v Speaker 2>The dam breaks, it seems like everybody goes crazy.

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<v Speaker 3>It's so parallel to me. I could not have imagined

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<v Speaker 3>COVID back in twenty ten when I first made this forecast,

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<v Speaker 3>we were thinking only you know, large military involvement overseas.

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<v Speaker 3>It's going to take a lot of spending, and you know,

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<v Speaker 3>when that's over, we'll get that relief rally. The other

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<v Speaker 3>thing that I add to the equation that you know,

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<v Speaker 3>I my father didn't articulate as clearly, but having you know,

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<v Speaker 3>the benefit of hindsight standing on his shoulders, you know,

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<v Speaker 3>the equation the war plus inflation equals super boom or

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<v Speaker 3>bull market. As you you know you've put it, is

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<v Speaker 3>technology and something I the phrase that I came up

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<v Speaker 3>with culturally enabling paradigm shifting technology, which you know, indoor plumbing,

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<v Speaker 3>the automobile, airc conditioning, air travel, the microprocessor, the internet,

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<v Speaker 3>you know, all the global So it's not just biotechnology,

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<v Speaker 3>energy whatever, now AI and now AI and exactly, it's

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<v Speaker 3>not just one thing. It's a it's a cocktail of

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<v Speaker 3>different technologies that drive productivity and the next boom, the

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<v Speaker 3>next boom and new developments. And I think that's where

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<v Speaker 3>we're at right now. I'm so glad you said that.

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<v Speaker 3>Whenever I try and explain to people the difference between

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<v Speaker 3>a secular expansion, a secularble market, and a cyclical I

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<v Speaker 3>always go back to your dad's post World War two chart.

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<v Speaker 3>And I like to tell people, you know, when World

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<v Speaker 3>War Two ended, forty two million GI's return home. They

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<v Speaker 3>have the GI bill that puts them through college.

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<v Speaker 4>That's where he got his degree. In the GENI bill.

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<v Speaker 1>You have the expansion of suburb you're the rise of

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<v Speaker 1>the automative internet culture, the interstate highway system, interstate highway system,

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<v Speaker 1>the rise of civilian air travel, the rise of the

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<v Speaker 1>elect tronic industry which we don't think about anymore, television, radio, dishwashers,

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<v Speaker 1>washing machines that didn't exist before the war, and any

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<v Speaker 1>at least not any And you combine all those things,

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<v Speaker 1>you have a twenty year economic expansion plus the baby

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<v Speaker 1>boom on top of it.

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<v Speaker 2>What a great time to be an investor.

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<v Speaker 4>And then after go ahead.

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<v Speaker 1>Now and then the last thing I was going to

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<v Speaker 1>say is today centiment is very negative. Social media is

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<v Speaker 1>a cancer. Social media is a cancer on us. What

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<v Speaker 1>regular media does a terrible job covering the economy.

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<v Speaker 4>That they are trying to compete with social to get

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<v Speaker 4>And the question.

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<v Speaker 1>I always like to ask people whenever we see political

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<v Speaker 1>polling is who the hell is answering the landline at

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<v Speaker 1>home except cranky old grandpa who just watched Fox News?

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<v Speaker 1>And is youll at the kids get off.

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<v Speaker 2>Who are voting for it?

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<v Speaker 4>They all talk goodbye?

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<v Speaker 1>Like, I hate those that sort of stuff. But it

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<v Speaker 1>leads to a fascinating question, which is people might be unhappy,

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<v Speaker 1>but you have a massive technological boom, a ton of

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<v Speaker 1>fiscal spending and an enormous amount of corporate productivity and

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<v Speaker 1>very low debt. What's might we be looking at another

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<v Speaker 1>super boom. We're in it, We're in it, We're already

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<v Speaker 1>in What inning is this?

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<v Speaker 3>You know what it's It's hard to tell. We're at

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<v Speaker 3>least in the middle of it. We could be getting

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<v Speaker 3>towards the end of it, at least for this for

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<v Speaker 3>this cycle. You remember after the nifty to fifty in

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<v Speaker 3>the late sixties, right, there was this secular bear market

0:12:42.800 --> 0:12:43.920
<v Speaker 3>ahead of the oil on bargo.

0:12:44.080 --> 0:12:46.280
<v Speaker 2>I use sixty six to eighty two is my phrase,

0:12:46.640 --> 0:12:47.360
<v Speaker 2>as my range.

0:12:47.400 --> 0:12:49.960
<v Speaker 1>Some people look at sixty eight works, but it's like

0:12:50.080 --> 0:12:51.760
<v Speaker 1>fifteen plus minus years.

0:12:51.640 --> 0:12:52.120
<v Speaker 4>Which is hissing.

0:12:52.200 --> 0:12:54.880
<v Speaker 3>The ultimate low was seventy four, right, But everyone says

0:12:54.920 --> 0:12:56.880
<v Speaker 3>that on nine was the beginning of the.

0:12:56.800 --> 0:12:58.520
<v Speaker 2>Of the It's absolutely nottely.

0:12:58.559 --> 0:13:00.360
<v Speaker 4>I think twenty sixteen was that little bear mark.

0:13:00.440 --> 0:13:02.320
<v Speaker 1>Twenty thirteen we said a new high in the SMP

0:13:02.520 --> 0:13:04.439
<v Speaker 1>going back to a one. That's the start of the

0:13:04.520 --> 0:13:05.520
<v Speaker 1>new bull market for me.

0:13:06.080 --> 0:13:08.640
<v Speaker 3>Or somewhere in the thirteen to sixteen period where we

0:13:08.679 --> 0:13:11.920
<v Speaker 3>had that little tiny mini bear market from fifteen to

0:13:12.160 --> 0:13:13.679
<v Speaker 3>February twenty sixteen.

0:13:13.559 --> 0:13:18.719
<v Speaker 1>Net barely down eighteen nineteen seventy eighteen, nineteen point nine.

0:13:19.280 --> 0:13:21.439
<v Speaker 1>Either way, it's such a normal pullback.

0:13:21.480 --> 0:13:23.120
<v Speaker 2>The twenty percent number is meaningless.

0:13:23.520 --> 0:13:27.000
<v Speaker 1>But I'm starting to think where we're like fifth inning,

0:13:27.080 --> 0:13:27.800
<v Speaker 1>sixth dinning.

0:13:27.640 --> 0:13:29.200
<v Speaker 4>Maybe even a little bit further up there.

0:13:29.280 --> 0:13:31.240
<v Speaker 3>I think by the time we get into twenty five

0:13:31.320 --> 0:13:33.880
<v Speaker 3>twenty six, we could start looking at, uh, you know,

0:13:33.920 --> 0:13:37.559
<v Speaker 3>another stock pickers sideways trading market for for many years

0:13:37.559 --> 0:13:39.600
<v Speaker 3>to come, or at least you know, a handful. The

0:13:39.679 --> 0:13:42.400
<v Speaker 3>thing with these cycles, you know, people have what you said,

0:13:42.440 --> 0:13:44.240
<v Speaker 3>sixty six to eighty two. People want to look at

0:13:44.280 --> 0:13:46.960
<v Speaker 3>this eighteen year cycle, seventeen and a half recycle.

0:13:47.200 --> 0:13:47.720
<v Speaker 4>It's more.

0:13:48.040 --> 0:13:50.200
<v Speaker 3>And the thing that we pointed out on this chart

0:13:50.240 --> 0:13:52.960
<v Speaker 3>is that it's impacted by events like the bull market

0:13:53.080 --> 0:13:55.560
<v Speaker 3>after World War Two was short. It was it was

0:13:55.600 --> 0:13:58.440
<v Speaker 3>eight years, the Roaring twenties, Okay, then you had you know,

0:13:58.679 --> 0:14:01.400
<v Speaker 3>the World War one, sorry correction, thank you, world War one,

0:14:01.559 --> 0:14:05.199
<v Speaker 3>and then the depression and the whole secular bear market

0:14:05.280 --> 0:14:09.080
<v Speaker 3>before you know, we're worked. It was twenty five years. Okay,

0:14:09.240 --> 0:14:11.880
<v Speaker 3>So these things aren't necessarily the same timeframe. We could

0:14:11.880 --> 0:14:15.120
<v Speaker 3>have a secular bear market, you know, after this we

0:14:15.200 --> 0:14:16.880
<v Speaker 3>get them the super boom level or a little bit

0:14:16.920 --> 0:14:18.800
<v Speaker 3>past it, you know. For it could be a few years.

0:14:18.840 --> 0:14:21.120
<v Speaker 3>It could be five, six, seven, eight, It could be

0:14:21.200 --> 0:14:24.120
<v Speaker 3>you know, fifteen twenty. We have to see what I

0:14:24.120 --> 0:14:25.520
<v Speaker 3>think it will be. On the shorter end of things.

0:14:25.560 --> 0:14:28.360
<v Speaker 3>I think all these cycles have compressed with the productivity,

0:14:28.480 --> 0:14:30.880
<v Speaker 3>and we're going to get more compression with AI and

0:14:30.960 --> 0:14:33.960
<v Speaker 3>all the technology. So I don't think it's going to

0:14:34.000 --> 0:14:38.200
<v Speaker 3>be a super long depression, despite some of the real

0:14:38.400 --> 0:14:39.840
<v Speaker 3>you know, pollyannas out there.

0:14:42.720 --> 0:14:46.280
<v Speaker 1>So to wrap up, there's an incalculable and terrible cost

0:14:46.320 --> 0:14:50.119
<v Speaker 1>of war in lost lives and physical and emotional injuries.

0:14:50.520 --> 0:14:55.239
<v Speaker 1>Global conflicts and war just exert a horrific cost on society.

0:14:55.880 --> 0:14:59.160
<v Speaker 1>Analysts who've studied this have found that the joys of

0:14:59.280 --> 0:15:03.640
<v Speaker 1>peace when war ends go beyond the relief of ending

0:15:03.720 --> 0:15:08.400
<v Speaker 1>human suffering. Peace often leads to strong economic growth and

0:15:08.720 --> 0:15:13.480
<v Speaker 1>large subsequent gains in stock markets. I'm Barry Results, and

0:15:13.520 --> 0:15:28.560
<v Speaker 1>you've been listening to Bloomberg's At the Money