Speaker 1: War in the Ukraine and the Middle East, inflation spikes
Speaker 1: in twenty twenty and twenty one. What is the financial
Speaker 1: impact of global conflict and rising prices?
Speaker 2: The answer might surprise you.
Speaker 1: And I'm I'm Barry Ridults, and on today's edition of
Speaker 1: At the Money, we're going to discuss whether war and
Speaker 1: inflation somehow adds up to higher portfolio prices. To help
Speaker 1: us unpack all of this and what it means for
Speaker 1: your investments, let's bring in Jeff Hirsh. Not only is
Speaker 1: he the editor in chief of this stock Trader's Almanac,
Speaker 1: he is the author of the twenty eleven book super Boom,
Speaker 1: Why the Dow Jones will hit thirty eight eight twenty
Speaker 1: and How you Can Profit from It. Full disclosure, I
Speaker 1: was privileged to write the forward to that book, and
Speaker 1: I have been delighted to see it more or less
Speaker 1: come true. So let's start with your dad, Yale Hirsh,
Speaker 1: who founded the stock traders Amanac sixty years ago. In
Speaker 1: nineteen seventy six, he predicted a fifteen year super boom,
Speaker 1: a five hundred percent move in the stock market. At
Speaker 1: the time, it wasn't especially well received. In fact, it
Speaker 1: was fairly widely mocked. But not only did he turn
Speaker 1: out to be right. By two thousand, the move was
Speaker 1: one thousand percent. Explain your dad's thinking about how war
Speaker 1: plus inflation equals a stock bull market.
Speaker 3: Well, I was a wee lad back then, but I
Speaker 3: remember the T shirts that now thirty four to twenty
Speaker 3: T shirts. I still have a box of mediums in
Speaker 3: the past, but my kids can wear it, but not me.
Speaker 3: So coming off the the you know, generational low in
Speaker 3: nineteen seventy four that everyone knows, which.
Speaker 1: Was seventy three to seventy four band market was as
Speaker 1: vicious as the financial.
Speaker 3: As seven awight, as vicious, and perhaps more so because
Speaker 3: it was a little bit fresher.
Speaker 1: It was.
Speaker 4: It was a little bit.
Speaker 1: It was also in the middle of a long bear
Speaker 1: market as opposed to coming off of market highs.
Speaker 3: True, we had been coming down for a few years,
Speaker 3: but in sixty six or sixty eight, depending upon where
Speaker 3: you went to. Yeah, yeah, But what he observed looking
Speaker 3: at at history long history, being a student of the
Speaker 3: four year cycle for year president election cycle and the
Speaker 3: decentil patterns, and having you know, written the almanac for
Speaker 3: several years, and just being an avid researcher. He's discovered
Speaker 3: that after war and you know, we're in the Vietnam War.
Speaker 4: We were just coming out.
Speaker 3: We had the April seventy five coming out of you know, Saigon,
Speaker 3: that horrific you know, steamed with the helicopters over the
Speaker 3: end of remembers, and we had, you know, the oil
Speaker 3: embargo which you and I probably both remember, the odd
Speaker 3: and even, And what he observed was that after these
Speaker 3: previous big you know, international conflagrations war World War One
Speaker 3: and World War Two, that after this this war period,
Speaker 3: there was inflation stimulated by government spending, and then after
Speaker 3: the inflation leveled off, the market went into this rally
Speaker 3: of five hundred percent or more following war excision.
Speaker 1: That's more than a rally, that's a full blown bull market,
Speaker 1: five hundred secular. So I'm glad you use that term
Speaker 1: to different than a shorter term cyclical market within a
Speaker 1: longer term secular. So what were the numbers like after
Speaker 1: World War One and after World War Two?
Speaker 3: The numbers it was about just around five hundred and
Speaker 3: seventeen five twenty one right in the just over five hundred.
Speaker 2: Percent both following both wars.
Speaker 3: Following both wars unbeknownst to him, after the Vietnam War
Speaker 3: and the inflation that came from you know that.
Speaker 2: That vol fargo and all rest and all the rest.
Speaker 3: It ended up being the better part of fifteen hundred
Speaker 3: and two thousand percent going all the way up to
Speaker 3: the top in neither ninety eight or two thousand if
Speaker 3: you want to measure it to there. His forecast, his
Speaker 3: prediction was for dow thirty four to twenty by nineteen ninety.
Speaker 2: That was five hundred percent from from the beguits.
Speaker 3: From the inchry day low of the Dow on December sixth,
Speaker 3: of memory serves, nineteen seventy four. And the Dow didn't
Speaker 3: actually hit that number until it was July of nineteen
Speaker 3: ninety two. But the SMP had the five hundred percent
Speaker 3: move and like that it was May of ninety ten.
Speaker 2: And that's really the more important July.
Speaker 4: Nineteen ninety It did it in nineteen ninety.
Speaker 3: So, you know, I remember when you and I were,
Speaker 3: you know, talking about the forward, and I had showed
Speaker 3: you the old you know, newsletters that he that he
Speaker 3: put up called smart money back then. And in January
Speaker 3: seventy seven he put out a special report called invitation
Speaker 3: to a super boom, which was you know, taking all
Speaker 3: of the research that had been done and the articles
Speaker 3: that were written throughout seventy six and putting in together
Speaker 3: a little package to you know, give to subscribers and
Speaker 3: to promote what he was talking about there, and we
Speaker 3: put those pictures in there. You know, he's got some
Speaker 3: hand drained lines on the old you know overhead projector
Speaker 3: you know, transparency. And then you know, as we were
Speaker 3: going through the financial crisis seven o eight, also looking
Speaker 3: back to the the two nine to eleven situation and
Speaker 3: then go into Afghanistan and all that stuff. Looking at that,
Speaker 3: we were tracking this this you know, long secular bear
Speaker 3: market pattern, and you know, after the bottom in nine,
Speaker 3: you know, we're looking at things in early twenty ten,
Speaker 3: we're saying this is setting up again.
Speaker 1: Coming out of the financial crisis of fifty six percent
Speaker 1: peak to trough sell off. You're looking at what just
Speaker 1: took place. We've been in Afghanistan really soon after nine
Speaker 1: to eleven, it's almost a decade. And then around the
Speaker 1: same time, we've been in Iraq for about seven years.
Speaker 1: We had a bout of inflation in seven eighth nine.
Speaker 1: What are you thinking when you look out over the
Speaker 1: next fifteen years. From the perspective of twenty ten, twenty eleven, we.
Speaker 3: Weren't looking out initially fifteen years. What we were witnessing.
Speaker 3: What we were observing was a similar chart pattern.
Speaker 4: It was. It was chart pattern recognition.
Speaker 3: Looking at the image that you know you've seen in
Speaker 3: the book of Yale's chart and seeing the same thing.
Speaker 1: That's one hundred year chart that shows you war inflation
Speaker 1: and several five hundred percent.
Speaker 3: I think I think Josh called it, you know, the
Speaker 3: greatest chart you know he's ever seen, or ever was
Speaker 3: something like on Earth or something like that at one point.
Speaker 3: But it's it's a log scale, so you can see,
Speaker 3: you know, the moves relative of the different time frames.
Speaker 3: But looking at that, you could see it setting up
Speaker 3: again coming off the the nine bottom. We just you know,
Speaker 3: crunched numbers, did research, went back and you know, read
Speaker 3: all the old stuff that he wrote, went through the
Speaker 3: old almanacs, and we're like, this is happening again.
Speaker 1: So let's let's take this apart and see if we
Speaker 1: can rationalize why this might happen. In the past, governments
Speaker 1: have talked about the peace diven end when the Berlin
Speaker 1: Wall came down as an example. The shift of government
Speaker 1: spending from the military and the Pentagon to civilian usage.
Speaker 1: Is that part of the thinking behind this.
Speaker 3: It does play a part, you know in there, but
Speaker 3: the spending from the war, and I think this time
Speaker 3: around the COVID spending is similar.
Speaker 4: It's government spending period.
Speaker 3: It just puts a lot of money into the economy,
Speaker 3: enables a lot of development.
Speaker 1: You're totally anticipating my next question, which which is how
Speaker 1: parallel is the war on COVID, the pandemic, lockdown, pent up, demand,
Speaker 1: terrible sentiment, carestacked one was ten percent of GDP. We've
Speaker 1: spent four depending on whose numbers you rely on, four
Speaker 1: or five, six trillion dollars inane and then we have
Speaker 1: a giant nine to ten percent spike in inflation COVID
Speaker 1: plus inflation.
Speaker 2: How parallel is this to what so.
Speaker 1: Following World War one, World War two, and Iraq in Afghanistan.
Speaker 4: I think it's it's incredibly parallel.
Speaker 3: One of the things that that the current cycle didn't
Speaker 3: have from the previous cycles was the inflation we had very.
Speaker 1: Long, like a little bit during the very Lember, oil
Speaker 1: ran up to one hundred and fifty barrels and meat,
Speaker 1: but it didn't milk got crazy expenses, but it didn't.
Speaker 3: Come through to the you know, the regular CPI, you know,
Speaker 3: minus food and energy.
Speaker 1: Because housing appeared to be disastrous, so that was why it.
Speaker 1: By the way, there's a crazy thing about owner's equivalent
Speaker 1: rent that when real estate prices go up, depending on
Speaker 1: the circumstances, sometimes OEER goes down dramatically, especially when rates
Speaker 1: are low, and they'll give anybody a mortgage.
Speaker 3: So CPI, which happened back in COVID. Who didn't refinance
Speaker 3: the US government?
Speaker 4: Right? We all the rest of us did.
Speaker 2: That's exactly right.
Speaker 1: So how much of this is sort of like a wartime?
Speaker 1: You know, there was rationing, there's supply chain issues, there's
Speaker 1: a ton of pent up demands and a lot of
Speaker 1: negative sentiment, and then when.
Speaker 2: The dam breaks, it seems like everybody goes crazy.
Speaker 3: It's so parallel to me. I could not have imagined
Speaker 3: COVID back in twenty ten when I first made this forecast,
Speaker 3: we were thinking only you know, large military involvement overseas.
Speaker 3: It's going to take a lot of spending, and you know,
Speaker 3: when that's over, we'll get that relief rally. The other
Speaker 3: thing that I add to the equation that you know,
Speaker 3: I my father didn't articulate as clearly, but having you know,
Speaker 3: the benefit of hindsight standing on his shoulders, you know,
Speaker 3: the equation the war plus inflation equals super boom or
Speaker 3: bull market. As you you know you've put it, is
Speaker 3: technology and something I the phrase that I came up
Speaker 3: with culturally enabling paradigm shifting technology, which you know, indoor plumbing,
Speaker 3: the automobile, airc conditioning, air travel, the microprocessor, the internet,
Speaker 3: you know, all the global So it's not just biotechnology,
Speaker 3: energy whatever, now AI and now AI and exactly, it's
Speaker 3: not just one thing. It's a it's a cocktail of
Speaker 3: different technologies that drive productivity and the next boom, the
Speaker 3: next boom and new developments. And I think that's where
Speaker 3: we're at right now. I'm so glad you said that.
Speaker 3: Whenever I try and explain to people the difference between
Speaker 3: a secular expansion, a secularble market, and a cyclical I
Speaker 3: always go back to your dad's post World War two chart.
Speaker 3: And I like to tell people, you know, when World
Speaker 3: War Two ended, forty two million GI's return home. They
Speaker 3: have the GI bill that puts them through college.
Speaker 4: That's where he got his degree. In the GENI bill.
Speaker 1: You have the expansion of suburb you're the rise of
Speaker 1: the automative internet culture, the interstate highway system, interstate highway system,
Speaker 1: the rise of civilian air travel, the rise of the
Speaker 1: elect tronic industry which we don't think about anymore, television, radio, dishwashers,
Speaker 1: washing machines that didn't exist before the war, and any
Speaker 1: at least not any And you combine all those things,
Speaker 1: you have a twenty year economic expansion plus the baby
Speaker 1: boom on top of it.
Speaker 2: What a great time to be an investor.
Speaker 4: And then after go ahead.
Speaker 1: Now and then the last thing I was going to
Speaker 1: say is today centiment is very negative. Social media is
Speaker 1: a cancer. Social media is a cancer on us. What
Speaker 1: regular media does a terrible job covering the economy.
Speaker 4: That they are trying to compete with social to get
Speaker 4: And the question.
Speaker 1: I always like to ask people whenever we see political
Speaker 1: polling is who the hell is answering the landline at
Speaker 1: home except cranky old grandpa who just watched Fox News?
Speaker 1: And is youll at the kids get off.
Speaker 2: Who are voting for it?
Speaker 4: They all talk goodbye?
Speaker 1: Like, I hate those that sort of stuff. But it
Speaker 1: leads to a fascinating question, which is people might be unhappy,
Speaker 1: but you have a massive technological boom, a ton of
Speaker 1: fiscal spending and an enormous amount of corporate productivity and
Speaker 1: very low debt. What's might we be looking at another
Speaker 1: super boom. We're in it, We're in it, We're already
Speaker 1: in What inning is this?
Speaker 3: You know what it's It's hard to tell. We're at
Speaker 3: least in the middle of it. We could be getting
Speaker 3: towards the end of it, at least for this for
Speaker 3: this cycle. You remember after the nifty to fifty in
Speaker 3: the late sixties, right, there was this secular bear market
Speaker 3: ahead of the oil on bargo.
Speaker 2: I use sixty six to eighty two is my phrase,
Speaker 2: as my range.
Speaker 1: Some people look at sixty eight works, but it's like
Speaker 1: fifteen plus minus years.
Speaker 4: Which is hissing.
Speaker 3: The ultimate low was seventy four, right, But everyone says
Speaker 3: that on nine was the beginning of the.
Speaker 2: Of the It's absolutely nottely.
Speaker 4: I think twenty sixteen was that little bear mark.
Speaker 1: Twenty thirteen we said a new high in the SMP
Speaker 1: going back to a one. That's the start of the
Speaker 1: new bull market for me.
Speaker 3: Or somewhere in the thirteen to sixteen period where we
Speaker 3: had that little tiny mini bear market from fifteen to
Speaker 3: February twenty sixteen.
Speaker 1: Net barely down eighteen nineteen seventy eighteen, nineteen point nine.
Speaker 1: Either way, it's such a normal pullback.
Speaker 2: The twenty percent number is meaningless.
Speaker 1: But I'm starting to think where we're like fifth inning,
Speaker 1: sixth dinning.
Speaker 4: Maybe even a little bit further up there.
Speaker 3: I think by the time we get into twenty five
Speaker 3: twenty six, we could start looking at, uh, you know,
Speaker 3: another stock pickers sideways trading market for for many years
Speaker 3: to come, or at least you know, a handful. The
Speaker 3: thing with these cycles, you know, people have what you said,
Speaker 3: sixty six to eighty two. People want to look at
Speaker 3: this eighteen year cycle, seventeen and a half recycle.
Speaker 4: It's more.
Speaker 3: And the thing that we pointed out on this chart
Speaker 3: is that it's impacted by events like the bull market
Speaker 3: after World War Two was short. It was it was
Speaker 3: eight years, the Roaring twenties, Okay, then you had you know,
Speaker 3: the World War one, sorry correction, thank you, world War one,
Speaker 3: and then the depression and the whole secular bear market
Speaker 3: before you know, we're worked. It was twenty five years. Okay,
Speaker 3: So these things aren't necessarily the same timeframe. We could
Speaker 3: have a secular bear market, you know, after this we
Speaker 3: get them the super boom level or a little bit
Speaker 3: past it, you know. For it could be a few years.
Speaker 3: It could be five, six, seven, eight, It could be
Speaker 3: you know, fifteen twenty. We have to see what I
Speaker 3: think it will be. On the shorter end of things.
Speaker 3: I think all these cycles have compressed with the productivity,
Speaker 3: and we're going to get more compression with AI and
Speaker 3: all the technology. So I don't think it's going to
Speaker 3: be a super long depression, despite some of the real
Speaker 3: you know, pollyannas out there.
Speaker 1: So to wrap up, there's an incalculable and terrible cost
Speaker 1: of war in lost lives and physical and emotional injuries.
Speaker 1: Global conflicts and war just exert a horrific cost on society.
Speaker 1: Analysts who've studied this have found that the joys of
Speaker 1: peace when war ends go beyond the relief of ending
Speaker 1: human suffering. Peace often leads to strong economic growth and
Speaker 1: large subsequent gains in stock markets. I'm Barry Results, and
Speaker 1: you've been listening to Bloomberg's At the Money