A Tale of Four Decades

Roger II was a Norman crowned King of Sicily in 1130. He was a great success uniting much of southern Italy under his rule. He was a great administrator as well as military ruler. Much of his power was made possible by the central location of Sicily in the Mediterranean Sea and the development of pasta. His economic success was largely based on the trading of durum wheat from North Africa and elsewhere in the Mediterranean. Trading foodstuffs of any kind was problematic because it would spoil. Converting the raw wheat into dry pasta allowed the Normans to store and ship the wheat without concern for spoilage. This was a huge advantage and allowed them to hold aside product for when the price was right. King Roger II was both a planner and an optimist believing there will be demand in the future for his stored grain at a better price than he could get in the present.

Today’s long term investors are planning for the future and making investment decisions with the same kind of optimism as King Roger II. A squirrel hoards acorns for the winter much like you keep cash in a savings account for emergencies. Whereas investing is planning for 5 or more years into the future and optimistically anticipating a harvest greater than what was planted. The key ingredients for success are time and optimism. Your optimism is grounded in the successful history of our democratic capitalist system. While the swings from boom to bust and back again are frightening – there is no denying the long term success. I prepared the following history of our economy during my adult lifetime as an exposition of that success. Please enjoy the scope and message and may it bring you good luck and good cheer in 2016.

1975

I turned 18 and could legally vote and imbibe alcohol – wahoo! I registered for the draft whose authority to induct draftees expired in June 1973. Saigon fell, President Ford escaped two assassination attempts and Margaret Thatcher became the first female leader of Britain’s Conservative Party. Saturday Night Live debuted. The first personal computer MITS Altair 8800 was released and sold for $397 ($1,751.35 in today’s dollars) in kit form. Today’s iPhone 6s has memory that is 67,000,000 times larger and it costs less than half as much already assembled and today’s software and internet makes the iPhone actually useful whereas the Altair was just a tinkerer’s hobby. The great hero of Soviet resistance Andrei Sakharov won the Nobel Peace Prize. An American Apollo spacecraft and a Soviet Soyuz spacecraft linked up in space and it is memorialized on a ten-cent U.S. postage stamp.

1985

Gorbachev leads the Soviet Union and meets with President Reagan. The Internet is created, Windows 1.0 is published and the first successful human heart transplant takes place. “We are the World” is the song of the year. New Coke is introduced and becomes the greatest marketing catastrophe since the Edsel. A first class U.S. postage stamp costs twenty-two cents.

1995

O.J. Simpson is tried for the murder of Nicole Brown Simpson and Ronald Goldman. On April 19 The Federal Building in downtown Oklahoma City was bombed in the greatest domestic terrorist atrocity in American history. Israeli Prime Minister Yitzhak Rabin is assassinated. The Rock and Roll Hall of Fame opened in Cleveland and Jerry Garcia died. A first class U.S. postage stamp costs thirty-two cents.

2005

Hurricane Katrina devastated an American land mass greater than Great Britain. Saddam Hussein went on trial. July 7 (7/7) becomes London’s 9/11, as coordinated attacks by Islamic terrorists on the bus and subway systems claim 52 lives. Pope John Paul II dies. A first class U.S. postage stamp costs thirty-seven cents.

2015 as of 11/23

The radical Islamic faction ISIS carries out terrorist atrocities in Paris and elsewhere. Refugees from Syria and elsewhere pour into Europe. The world’s leading nations reach an accord with Iran on its nuclear development program. Yogi Berra dies. A first class U.S. postage stamp costs forty-nine cents.

A Tale of Four Decades

  • Global population is up nearly 80%, with extreme poverty slashed from one human in two to one in ten, creating wave upon wave of new middle class consumers. Do you remember the book “The Population Bomb” of 1968 which warned of overpopulation and mass starvation in the 1970s and 1980s?
  • The U.S. population is up by half. We still have lots of room to grow: U.S. population density per square mile is 85, compared to almost 300 in France, 590 in Germany, 680 in the UK and 870 in Japan. We also have staggering natural resources with mineral rights vested in the landowner and a hundred years’ worth of hydrocarbon energy reserves.
  • Real GDP more than tripled on only a 50% population increase – meaning real GDP per capita has soared.
  • The S&P 500 rose more than twenty times on an earnings increase in excess of fifteen times and a dividend boost approaching 12 times. Measuring these gains against the general rise in consumer prices of less than four and a half times indicates a staggering accretion of wealth.

What are the mega trends underpinning this spectacular economic and financial progress? There are two forming a virtuous cycle. The spread of the free market as liberty vanquished communism and most extreme iterations of socialism during this period, and the exponential progress in information technology.