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Tom Au
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In the early 1990s, during the middle of a secular bull market, I began work on "A Modern Approach To Graham and Dodd Investing," that was not particularly suited for the decade of the 1990s, but was ideally suited for the following "Lost Decade" of the 2000s.
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  • Herbert Hoover Was Not Unwise, Just Unlucky 0 comments
    May 11, 2009 3:34 PM

    Following a major scare, with the Dow falling more than 50% off its peak, and a recession coming in its wake, the U.S. economy shows halting, but meaningful steps toward recovery. The end of the recession may be several quarters away, but there appears to be light at the end of the tunnel. That's the way it looks today. More to the point, that was probably the way it looked to President Herbert Hoover in 1931.

    Herbert Hoover was no laissez faire Republican like his predecessor, Calvin Coolidge. When the crisis hit in 1929-1930, he tried to get the country moving again, first through informal "jawboning" of business, then legislative action, and finally through executive order. (Earlier, he had been Commerce Secretary, and much earlier, one of the western organizers of the defense of Beijing, China against Chinese "Boxer" rebels.) Like  George Bush Jr. he, launched Republican-led bailout programs (but as a "good" Republican, Hoover disavowed them, allowing FDR and the Democrats claim credit for the New Deal). Likewise, both George Bushes were non-laisse-faire ... following Reagan...

    President Hoover's belief that "Prosperity is just around the corner" was upended by something basically out of his control; the collapse of the Credit-Anstalt bank in Austria, that destroyed the neighboring GERMAN economy (helping to bring Hitler to power), with its ripple effect on the United States. A comparable event today would involve the collapse of a major bank "offshore" China (in Hong Kong, Taiwan, Korea, etc.), because China is now the world's de facto second largest economic power, the way Germany was in the 1930s. And China, which has a 6% "catch-up" growth rate,  now has an economy dangerously close to this figure. Falling below it would mean de facto recession. 

    We can reasonably hope for a better result than the global depression that followed 1931.  But it will take a bit of luck to dodge all of the bullets. President Hoover thought he could have done so, probably should have(statistically), certainly would have if possible, but didn't. He was unlucky, not unwise.

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