The 1970s weren’t America’s finest hour. Early in the decade we retreated from Vietnam after losing 58,000 American dead and over 300,000 American wounded. At the end of the decade fifty-two Americans were captured and held hostage for 444 days in Iran. An attempt to rescue the hostages proved to be a humiliating failure, as the Vietnam Era military equipment failed, a helicopter crashed into a cargo plane, and eight Americans died.
In-between these catastrophes, the American economy was moribund, trapped in what was termed “stagflation:” high inflation without growth. American business seemed to have lost its competitiveness. With little competition after World War II – most of the developed world lay in ruins – American companies became fat, happy, and lazy,(1) and by the 1970s a resurgent Germany and Japan were eating our lunch. The USSR, which had promised to bury us, seemed to be right on schedule. America, according to its President, was suffering from a “malaise.”(2)
If you had been an investor back then – and some of us were – you could be forgiven for giving up on America and its stock market. But those would have been disastrous decisions. In 1981 everything seemed to change on a dime. Taxes were lowered, releasing vast creativity among the workforce. The leveraged buyout craze put indolent companies on notice that they were not long for this world. And by the end of the decade the USSR had collapsed, exhausted by its attempt to compete with this resurgent colossus.
Which brings us to today. In many ways, the years that began in 2008 look alarmingly like the 1970s.(2) A global financial crisis has crippled the US economy, as well as the economies of most developed nations. Unemployment rose to 1970s levels in the US and to depression levels in peripheral Europe. Economic growth has been pathetic virtually around the world. And maybe the problems aren’t temporary: the Fed worries that structural changes in the economy and workforce will lead to permanently slower growth.
And around the world, events seem to be spinning out of control – not just out of America’s control, but out of anyone’s control. The chaos is obvious to all of us, from a terrifying Ebola outbreak, to the Crimea and Ukraine, to ISIS and the hijacked Arab Spring, the collapse of the so-called BRICs, the slowdown in China’s growth trajectory and the parallel rise of Chinese aggression against its neighbors, even to the rise of extremist and nativist parties in Europe and the slow disintegration of the Franco-German alliance, which has been at the core of European peace and prosperity since the end of World War II.
As investors, there’s nothing we can do about the disorder around the globe, but as we think about how and where to invest our capital the question arises, “What is the implication of all this tumult?”
There seem to be three possibilities:
- The chaos is simply random and will lead to nothing different than the world we are used to living in.
- The chaos is the leading edge of a broader disorder that will likely engulf even societies that are currently stable.
- The chaos, however frightening and dangerous, will lead to something better, something more stable and more likely to lead to the nurturing of human potential.
I was initially leaning toward (1), but as I continued to watch the violence and disorder unfold, I noticed something unusual (I’m hardly the only one to notice it): the chaos has led to some extremely odd bedfellows. Countries that seemed only yesterday to be at each other’s throats now find themselves cooperating, willingly or unwillingly, because there is something worse at their throats.
In my next post we’ll examine some of these strange bedfellows, and also what it might mean for the future of order and disorder around the globe – and, therefore, for the question of how and where to place our capital at risk.
(1) I was a lawyer in those days and one of my clients was a very large steel company. The CEO of the company had decided that, to compete with Germany and Japan, a new, state-of-the-art steel mill should be built, and he also knew exactly where he wanted it sited. But before ground could be broken the idea had to be vetted – and re-vetted and re-re-vetted – by sixteen layers of management: the bureaucracy-from-Hell. After two years had gone by with no decision in sight, I suggested to a senior vice president that all this seemed to be taking a very long time. “What’s the rush?” he said.
(2) I put “malaise” in quotes because President Carter’s 1979 nationally-televised speech became known as the “malaise” speech. In fact, Carter never used the word, although he did refer to America’s “crisis of confidence.”
(3) See, e.g., Thomas L. Friedman, “Order vs. Disorder, Part 2” (http://www.nytimes.com/2014/07/16/opinion/thomas-friedman-israeli-palestinian-conflict-order-disorder.html?module=Search&mabReward=relbias%3Ar%2C{%221%22%3A%22RI%3A9%22}) and “Order vs. Disorder, Part 3” (http://www.nytimes.com/2014/08/24/opinion/sunday/thomas-l-friedman-order-vs-disorder-part-3.html?module=Search&mabReward=relbias%3Ar%2C{%221%22%3A%22RI%3A9%22}&_r=0). (Don’t ask me what happened to “Order vs. Disorder, Part 1.”
Next up: Strange Bedfellows, Part 2
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Please note that this post is intended to provide interested persons with an insight on the capital markets and is not intended to promote any manager or firm, nor does it intend to advertise their performance. All opinions expressed are those of Gregory Curtis and do not necessarily represent the views of Greycourt & Co., Inc., the wealth management firm with which he is associated. The information in this report is not intended to address the needs of any particular investor.
