Monday March 13 2017
I made the mistake of entering the brokerage business in October, 1973. But at the time things looked just great.
The Dow Jones Industrial Average had finally regained its first time ever high of 1,000 last recorded in the mid-1960s. Richard Nixon won 60.7% of the popular vote carrying every state but Massachusetts. Nixon and Kissinger claimed to have a plan to win/end the war in Viet Nam.
A brokerage firm owned by the DuPont family, F I duPont then DuPont Glore Forgan, was in trouble. Ross Perot’s EDS firm was improving their ‘back office’ transactions. While today’s readers only know Ross as a quirky Presidential candidate, back then he was Buffet, Gates, and Musk all rolled into one flamboyant character. He was the first ever paper billionaire after taking EDS public at a 193 to one price earnings ratio. If anyone understood winning on Wall Street, it ought to be this guy.
As a newly minted UT Austin MBA it sounded great to me, I mean, what could go wrong?
Quite a bit could go wrong, and did as it turned out. Readers not familiar with the ear can brush up in wikipedia articles titled Watergate and Richard Nixon.
Our class graduated in April 1974 and the market was already sinking. Before it was all over, numerous brokerage firms would be acquired by others. Merrill acquired White Weld which put it for the first time in the real investment banking business. Perot acquired a large wire house named Walston, only to see the merged firm collapse by August 1974.
The point of today’s column is to mention the amazing similarities between then and now.
Cycle wise, the markets hit their low at DJIA 577 in December, 1974. Forty years later the Transports hit a new high in November, 2014. Transports have registered a second higher high since.
Then the DJIA had regained its 1966 high over 1,000. Now it has it the highest level ever at 21,000.
In similar fashion, Trump beat all the Republican pros and then Hillary, the Dems simply cannot believe it now, as they could not believe it then.
Popular stocks then were known as the Nifty Fifty. Today we have the Fabulous Five, Facebook, Google, et al.
An article this week in the WSJ notes that record money is pouring into Exchange Traded Funds ETFs. ETFs are manufactured investments put out by firms like Blackrock. An ETF mimics a particular sector by purchasing other derivatives such as futures and options and stock. So we have individuals investing not in stocks, but in outright derivatives supported by a brokerage firms. A brokerage firm floats with ten percent capital on a sea of borrowed money.
But by far the most amazing coincidence is in the political arena. Then the press and the Democrat majority in both Houses despised Nixon. Nixon certainly returned the feeling right down to forming a written enemies list.
Democrats simply cannot believe they lost the election.
The Democrats are throwing up every imagined charge from Russia to Trump business to his daughter’s conflicts of interest. Already they took down the National Security Adviser Flynn, blocked the Labor Secretary nominee, and demanded and got the new Attorney General to recuse himself.
As Karl Rove observed if they can turn three Republican senators against him, Trump is toast.
The charges that co not stick do not matter, they only need to find one, they can lose all the rest if they just find one that causes doubt.
Nixon had his enemies list. Now Steve Bannon declares every day is war with the media. Now Trump charges Obama with tapping his phones.
And today the turmoil is literally spread all over the world, fitting the higher level of the markets. Leaders are being impeached or voted out or simply cannot run due to low public regard. This is the case in Brazil, Argentina, Venezuela, France, England, Italy, and now South Korea.