Merry Christmas! The holidays are such a wonderful time of year. Regardless of one’s religious beliefs, to see the outpouring of care for others and giving to those less fortunate during this time of year reminds us of all the good there still is in the world. Wouldn’t it be wonderful if we all would carry that spirit throughout the rest of the year?
The celebration of Christmas involves a look back into history over 2,000 years ago to view events that still have meaning for most Christians in today’s world. We can also find it valuable to reflect back on a much shorter history to note where we have really come from in the financial world. Too often, we are bombarded with the media’s view of “history” when the facts tell a completely different story.
Just last week, Fed Chairman Janet Yellen raised interest rates by 0.25%…the smallest possible change that could be made. Yet this infinitesimal change brought with it greater media attention than when astronaut Neil Armstrong walked on the moon: “Dow rallies on heels of a historic rate hike” were the headlines the next day.
Therefore, our gift to you this holiday season is the gift of…..Hope.
To do that, we need to look at the last four decades. Now that’s history: at least enough history to gain perspective in the financial world. Very few people investing today were investing before then. And for those that were, from their perspective, we can gain confidence. Our wish is that this 40-year stroll down Financial Avenue will help you gain that perspective and find hope for our economy over the next 40 years. You won’t find it in today’s headlines!
Saigon falls; President Ford escapes two assassination attempts. Margaret Thatcher becomes the first woman leader of Britain’s Conservative Party. Saturday Night Live debuts. An American and a Soviet spacecraft link up in space; the event is memorialized on a ten-cent U.S. postage stamp.
- Global population: 4.1 billion, fully half of whom live in extreme poverty.
- U.S. population: 216 million
- U.S. real GDP: $5.49 trillion
- S&P 500 year-end close: 90, Average earnings/share: $7.71, Average dividends/share: $3.73
Gorbachev comes to power in the Soviet Union, and meets with President Reagan. The Internet domain name system is created. Windows 1.0 is published, and the first successful human heart transplant takes place. A first class U.S. postage stamp costs twenty-two cents.
- Global population: 4.85 billion
- U.S. population: 238 million
- U.S. real GDP: $7.71 trillion
- S&P 500 year-end close: 211, Average earnings/share: $15.68, Average dividends/share: $8.20
The Oklahoma City bombing is the greatest domestic terrorist atrocity in American history.
O.J. Simpson’s murder trial ensues. Israeli Prime Minister Yitzhak Rabin is assassinated. The Rock and Roll Hall of Fame opens. Jerry Garcia dies. A postage stamp costs thirty-two cents.
- Global population: 5.7 billion
- U.S. population: 266 million
- U.S. real GDP: $10.28 trillion
- S&P 500 year-end close: 615, Average earnings/share: $37.70, Average dividends/share: $14.17
Hurricane Katrina devastates an American land mass larger than Great Britain. Saddam Hussein goes on trial for his life. July 7 becomes London’s 9/11, as coordinated attacks on the bus and subway system claim 52 lives. Pope John Paul II dies; he will be canonized only nine years later. A postage stamp costs thirty-seven cents.
- Global population: 6.5 billion, but by the turn of the century, the rate of extreme poverty has fallen to one person in three.
- U.S. population: 296 million
- U.S. real GDP: $14.37 trillion
- S&P 500 year-end close: 1,248, Average earnings/share: $76.45, Average dividends/share: $22.38
A radical Islamic faction, ISIS, casts the Middle East into chaos. Refugees pour into Europe. The world’s leading nations reach an accord with Iran on its nuclear development program. Yogi Berra dies. A postage stamp costs forty-nine cents.
- Global population: 7.29 billion, less than one in ten of whom live in extreme poverty.
- U.S. population: 322 million
- U.S. real GDP through 9/30/15: $16.39 trillion
- S&P 500 as of 11/23/15: 2,086, Average earnings/share: $118, Average dividends/share: $43
This then, is the tale of four decades:
- Global population up nearly 80%, with extreme poverty slashed from 1 in 2 to 1 in 10 humans, creating a wave of new middle class consumers.
- U.S. population has increased by 50%, and still has almost unimaginable room to grow: population density per square mile in this country is 85, compared with 300 in France, 590 in Germany…and 870 in Japan. The U.S. still possesses staggering natural resources: a hundred years’ worth of hydrocarbon energy reserves.
- Real GDP has more than tripled, on only a 50% population increase.
- The S&P 500 rose more than 20 times, on an earnings increase in excess of 15 times and a dividend boost approaching 12 times. Far more significantly, these gains must be measured against an increase in the general level of consumer prices by scarcely more than 4.5 times. Surely this is the greatest accretion of real wealth by the greatest number of people in the history of the world.
What are the megatrends underpinning this spectacular economic and financial progress? Well, there are two, and of course, they form a virtuous cycle. They are:
- The spread of the free market, as liberty vanquished communism in many parts of the world as well as the most extreme iterations of socialism during this period, and
- Exponential progress in information technology. This cycle continues at a rapid pace.
Lowell Wood, a man whose total lifetime patents now exceed Edison’s, ridicules the idea that technological innovation is topping out. Take for example, the fact that a smartphone in a middle-schooler’s backpack has more computing power today than the state-of-the-art mainframe computer had back in 1975. If this data doesn’t give you a feeling of hope for the world, nothing will. Sure, there are challenges, but we can overcome them.
This holiday season we wish for you to:
- Be hopeful,
- Be encouraged, and most of all,
- Be merry.
See you in 2016!
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Statistical data courtesy of Nick Murray.
Flickr photo by: asenat29