The Last Market Cycle (as explained by Netflix), Pt. 2
This post is a continuation of the previous blog post concerning the Decades miniseries on Netflix. If you haven't yet read that post, it's best to begin there.
Example 2: - Recession: 70s Ep 5: "The State of the Union is not Good"
Market Clues, as described in J Scott's Recession-Proof Real Estate Investing:
- We have two successive quarters of negative GDP (84)
(c/o Seeking Alpha)
- Housing supply is increasing above the average
(c/o SoberLook.com)
- Rental rates decline and vacancies increase (85)
We see this occurring later, in the mid 80s...
(c/o MotherJones.com)
What was the media saying?
"Across the United States, plants are closing, industries are slowing down, businesses are failing. At least 6 million people are out of work, and unemployment in the United States is at its highest level in 13 years."
We have stagnation - it's a new disease. It's stagnation, with inflation.
Jimmy Carter's address: "I want to speak to you first tonight about a subject even more serious than energy or inflation. It is a crisis of confidence. For the first time in our country's history, the country believes the next 5 years will be worse than the past 5 years."
What can we learn?
In a recessionary environment, fear and pessimism are pervasive:
"Americans are feeling poorer and poorer. Their salaries weren't going up as fast as the cost of milk and cheese. Something is wrong with the system."
"For many pensioners, the struggle is to find enough to eat... from the garbage, if necessary."
Commentary on the Iranian Hostage crisis of 1981 "Ted Koppel on ABC news, Walter Kronkite. America: Day 15, Day 100, Day 200; it started wearing on people, and Carter started becoming a symbol of lost American prestige."
Ronald Reagan: "The crisis we face is not the result of any failure of the American spirit; it is the failure of our leaders."
There is often rhetoric emphasizing frugality:
Jimmy Carter's address: "Too many of us now tend to worship self-indulgence and consumption. Human identity is no longer defined by what one does, but by what one owns."
Gerald Ford's address: "There is only one point on which all advisers have agreed: we must whip inflation right now. Unless every able American pitches in, Congress and I cannot do the job."
- commentary from Richard Reeves: There was no program. Basically the president was saying "buy less"
Example 3: Expansion: 90s Ep 6: "Information Age"
Market Clues:
- There is general economic optimism (94)
Netscape: "15 months ago [Marc] Andreesen, fresh out of the Univeristy of Illinois helped start a company called Netscape. At 11am this morning the company's stock went public, and Wall Street went bonkers.
So what does Netscape produce that now makes the company worth $2.9 billion? This, the Netscape Navigator, software which makes it easy for people to connect to the global computer network called 'the internet.' "
"For the most part, entrepreneurs have not figured out a way to make profit on the internet. That is, until Ebay came along. Pierre Omidyar started the auction site as a hobby. 3 year later, it has a market value of close to $6 billion and is a superstar on Wall Street."
Jeff Bezos on Amazon losing money in the 90s: "I can tell you that I think it's good that we're losing money right now. It's important to Amazon.com in the future, in the long term."
- Money is getting cheaper (96)
- There's more talk about real estate investing and investing in general (94):
Describing the Dot Com bubble: "What counted was not profit, what counted was eyeballs: if you could get enough people using your stuff, you would figure out a way organically to generate a profit."
"Anything with 'dot com' in its name is selling like hotcakes."- Gurus coming out of the woodwork:
I don't want to throw too many stones here, but for some context:
Dave Ramsey Show, established 1996
HomeVestors of America ("We Buy Ugly Houses"), franchised 1996
Rich Dad Education, established 1997
FortuneBuilders, established 2004
Interesting example: , founded 2002
What was the media saying?
On Windows 95 release: "Getting the Rolling Stones to allow their music to be used in the ad launched tonight, is the sign of a company at the peak of its powers. The challenge for Microsoft is to stay there, with the race now on to exploit the internet, it may soon be Microsoft's turn to fear the competition."
"On NBC News In-Depth tonight we're going to talk about the superstars of the stock market, those red-hot internet stocks. Companies that in some cases didn't exist 3 years ago are now trading in the stratosphere"
"[The Internet] hit, and within like 2 years it's become so... powerful."
What can we learn?
- The greed which leads to market bubbles is always justified by those who stand to profit from rising prices.
"I don't see [the housing market] as a bubble, I see prices continuing to rise at a steady rate."
"A year ago, investors were so eager to buy into the internet they were happily ignoring traditional measures of success: sales, profits and growth. But reality has now set it."
- Rising tides tends to wash out empirical, logical justifications in favor of emotion.
"These upstarts kept saying "we're worth billions of dollars;" where's your revenue? They didn't have any."
In Closing
While it's true that timing the markets precisely is a fool's errand, those who have experienced the emotional peaks and valleys of the markets have a huge psychological advantage over those who only have current experience to drive them. As the old adage goes, "those who do not learn from history are doomed to repeat it..." but what about those who weren't around to experience that history?
Surround yourself with people who were there, and learn from history as it was reported in the written word and the media.
For those of us who were too young, or too preoccupied, to notice, it is my recommendation that you check out a bit of source material to help you grapple with the frenzy, the panic, the fear. And, luckily enough, it gives further justification to lounge on the couch in the name of broadening one's horizons.
How did CNN do with it's portrayal of the market cycles over the last 40 years? What do the various news clips and expert commentary say about human responses to these market cycles, both with and without historical context?
Tell me about it in the comments!
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