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War and Markets — the Shocking History |
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Dear reader, |
Like rain off a windshield, or bullets off a battleship… yesterday Mr. Market swept aside the unfolding Middle East unpleasantness. |
It is true, stocks opened in swift retreat. Yet they rediscovered their courage as the day ticked on. |
The Dow Jones Industrial Average careened some 600 points in early trading. Yet by the closing whistle, the index was merely 73 points in red territory. |
Both the S&P 500 and Nasdaq Composite managed to claw their way into positive territory by day's end. |
And so today my thoughts turn to the homicidal sciences… and to Wall Street. |
That is,my thoughts turn to warfare, markets and how they intersect. |
To what extent does warfare — or the prospect of warfare — impact markets? |
Much? Little? |
Market observer James Altucher ransacked market history. |
From the Second World War clear through the tumults of Sept. 11, 2001, this fellow stretched it all upon his canvas… rolled his sleeves, spat upon his hands… and set to work. |
Market Shocks |
Mr. Altucher identified several wallops and their subsequent market reaction. The most conspicuous among them were: |
The commencement of World War II (Sept. 1, 1939)… |
Pearl Harbor (consult a book if you must)… |
The Cuban Missile Crisis (Oct. 22, 1962)… |
Sept. 11, 2001. |
James recorded the S&P's activity the day before the shock… the day after the shock… and its panicked low the week following the shock. |
He then inspected the S&P one week later, one month later and six months later. His conclusion? |
"Each time, the market has absorbed the shock and moved past the event." |
That is correct. The stock market absorbed the initial blow and plowed onward. |
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Big Deal, Says Wall Street |
When Herr Hitler blitzkrieged Poland on Sept. 1, 1939 — no average day — the market largely shrugged its shoulders… as if it was an average day. |
The S&P took a slip. It found a shallow bottom merely days after. |
The index proceeded higher for the next six months… as if the German soldaten were mere tourists on holiday… taking in the pleasant sights of Europe. |
Why weren't markets fleeing in headlong retreat — along with Europe? |
The Federal Reserve had yet to assume the role of stock market guardian and savior. |
Only in recent decades has it taken up that high and solemn duty. |
We cannot therefore credit the Federal Reserve for the stock market's steadfastness. |
Next we come to Pearl Harbor and its aftermath. |
Another Yawner |
It is true, the market took a good wobble after Pearl Harbor. |
And the S&P proceeded lower into January 1942. Yet it was up and punching shortly thereafter. |
It remained up and punching for the war's duration. |
The S&P opened each year higher than the previous year — until 1946. |
Of course comes the objection: Stocks were up and away on the prospects of ultimate Allied victory. |
Just so. Yet the S&P had found its legs in January 1942. |
What was occurring in January 1942? |
In January 1942 Japan was trouncing the United States Navy and the Germans were amok in Europe. |
The war tide only swung America's way after the Battle of Midway in June 1942 — several months after the market tide swung Wall Street's way. |
And the German defeat at Stalingrad did not culminate until February 1943. |
Thus the anticipation of Allied victory theory finds little excuse in the facts. |
Armageddon? Whatever |
What about October 1962 and its famous missiles? Did the nuclear brinkmanship traumatize stocks as it traumatized people? |
It was — after all — a very near-run thing. Never had the world stood so precariously upon the devil's shovel. |
Yet it did not traumatize the stock market as it traumatized people. |
After a brief fright the S&P went whistling ahead, carefree as a bird. |
"What is most interesting is the ferocity with which the market rallied in only a few months," says Mr. Altucher. |
The market, in fact, spent the following three decades mocking Armageddon: |
The party started in 1962 and continued for the next seven years, resulting in the biggest bull market in history until the 1990s. |
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Finally we come to Sept. 11, 2001. |
A Net Isn't a Springeboard |
The very date makes an icicle of my spine. |
I was within direct eyesight of the World Trade Center that morning… and gazed in horror as its clone towers went heaping down. |
Markets were shuttered that entire week. They traded down heavily upon reopening. |
Yet one month later, the S&P was a mere 15 points from its Sept. 10 closing. |
Six months after the evil day the S&P was 73 points above its Sept. 10 closing. |
Many credited the silent hand of the Plunge Protection Team, so-called. |
Its purpose is to stretch a safety net across the canyons of Wall Street… and arrest the plunging stock market before its encounter with pavement. |
Yet the stock market bounced several stories higher for the next six months — a period during which Enron toppled, incidentally. |
The Plunge Protection Team may interrupt a plunge. But can it send the plungee vaulting higher for six months? |
A net is not a springboard. |
The Good News |
I do not liken this present conflict to the Second World War or to Sept. 11, 2001. It will not likely approach them either in scale or in magnitude. |
Yet what are we to conclude from history? |
If Mr. Altucher is correct, market shocks may prove less shocking than feared: |
The nation has nevertheless undergone shocks to the system that we have survived and will continue to survive. |
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I cannot dispute the first point. And I am consoled by the second point. |
There's Always Hope |
As a man sunk hopelessly in pessimism, I observe glasses that are half-empty of liquid — not half-full of liquid. |
And where others observe clouds with silver linings, I observe solid gray masses. |
And by my own admission, I have yanked on multiple alarms that proved ultimately false. |
In each instance the financial and economic systems had me munching crow. |
Yet as any man given so often to error, I console myself that one day I will enjoy vindication. |
One day, one some distant tomorrow perhaps, I will be proven correct… and the market will validate my admittedly grim expectations. |
"Three grand essentials to happiness in this life," argued the very late English writer Joseph Addison, "are something to do, something to love, and something to hope for." |
If nothing else… I have something to hope for. |
Brian Maher |
for Freedom Financial News |
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