In last week's column, I showed charts of how the market has alternated between significant bull and bear markets since the top in 2000, and how Warren Buffett has been right so far in his prediction in November, 1999 that, "Over the next 17 years equities will not perform anything like - anything like - they've performed over the last 17 years."
I noted how the market since 2000 has been in a sideways 'secular' bear market that is very similar so far to the last 17-year long secular bear market of 1965-82. The current 'cyclical' bull market that began in 2009 has carried the market back up to its previous peaks of 2000 and 2007, and this time exceeded those peaks. That has it looking ominously similar to 1973, when the Dow also returned to its previous two peaks and broke out to a new high.
That had investors in 1973 excited, bullish, and convinced that secular bear was over. But instead, the next cyclical bear market was even worse than the previous two.
I've received a lot of messages since asking if conditions might not be quite different now than at that peak in 1973, given the improving economy, ongoing stimulus efforts by global central banks, assurances coming out of Wall Street that the bull market still has years to run, and so on.
So it has been interesting to take another look back at that period.
There are indeed differences between now and 1973, most notable that the 1970's were a period of extremely high inflation and interest rates, while inflation and interest rates have been extremely low in recent years.
But there were fascinating similarities, not only in the return of bear markets each time the stock market returned to its previous highs, but in the way the political drama played out.
For instance, it's said that probably more new regulations were imposed on the economy in Nixon's first term, which ended in 1972, than in any presidency since the New Deal, particularly related to healthcare and environmental issues. New bills and regulations included the creation of the Occupational Safety and Health Administration (OSHA), the Environmental Protection Agency (EPA), the National Oceanic and Atmospheric Administration (NOAA), the 1972 Noise Control Act, the 1972 Marine Mammal Protection Act, the 1973 Endangered Species Act, and the Supplemental Security Income (SSI) Act, providing a guaranteed income for elderly and disabled citizens. The Nixon years also brought large increases in Social Security, Medicare, and Medicaid benefits.
Nixon actually proposed more programs than he was able to get enacted, including a National Health Insurance Partnership Program, expansion of the Food Stamp program, and a Family Assistance Program.
It was also interesting that the economy had stumbled early in Nixon's first term, but an economic recovery began in 1971 and lasted into the 1972 campaign season, helping Nixon win re-election by a wide margin in 1972.
The stock market rally that accompanied that economic recovery had the Dow 6% above its previous two bull market peaks by 1973. But the economy began to stumble again.
And here's where we don't know if the similarities will continue. The stock market topped out in 1973, plunging into another serious bear market, even though the government had introduced expansive fiscal and monetary policies in an effort to re-stimulate the economy.
Then there are the military similarities. As the U.S. currently struggles to extricate itself from the record-long and costly wars in Iraq and Afghanistan, it recalls the similar ongoing struggle in 1972 and 1973 to wind down the then record long and costly Vietnam War.
Even the optimism on Wall Street and in the media was similar, including the reasons for the optimism.
Time magazine, January 8, 1973 (two days before the market tumbled into the serious 1973-74 bear market):
"Most Wall Street analysts are convinced the market will continue to climb smartly in 1973. Wall Street sees signs that small investors are beginning to overcome fears instilled by the stock market decline of 1970 and are returning to the market."
So there are dissimilarities, particularly in area of inflation and interest rates, but the similarities are fascinating.