Similarities between the 80's recession and today-

Interestingly, history has shown that economic recessions are not necessarily bad for the market because the stock markets are always looking ahead, the recession of the early-1980s serves as a great reminder of this. In 1980 the US economy was dealing with rampant inflation and a burgeoning recession. Largely because of this, gold prices rose from a low of $104/ounce in 1976, reaching $850/ounce by January of 1980. To further confuse the issue, the Fed had the discount rate set at 12% and the country was entering an election year.
At the close of 1980 the US economy continued to struggle as the Fed discount rate reached 13% and the prime rate peaked at 21%! Ronald Reagan entered office in 1981 seeking aggressive reductions in domestic spending & tax cuts. Reagan succeeded in the latter largely due to his economic advisor, Arthur Laffer; know for the ‘Laffer curve’ which illustrated that government revenues would increase as tax rates fell. Naturally, these policies were greatly debated, not only for the principal of Laffer’s theory but also for the budget deficits they would produce in the near-term if inflation remained high. Complicating matters further, Reagan inherited a US Economy that was a mere few months from entering its longest economic contraction since the Depression (16 months). Fortunately, following that recession we experienced one of the longest sustained growth periods in this country's history - but at the time, comparisons to the 30’s were being made, just like our current recession.
Of particularly interest to me are the similarities between the 80’s and today:
By August of 1982 ‘talking heads’ were debating whether the market was reacting to the end of a deep recession, or simply experiencing a ‘bear market rally’. Similar to the most recent ten year period, investors had experienced a ‘lost decade’, as the Dow was down 17% for the 10 years leading into August 1982. Today, investors can look back 10 years and see that the DJIA has lost about 12%. Despite the current economic backdrop of budget deficits and a deep recession, we see the market indexes behaving in a way that is at least comparable to that of the 1982 bottom.
Despite the news in ‘82, the market had bottomed and the supply-demand relationship pointed to offense, but those who myopically stared at the economy for insight saw nothing but inflation, unemployment and deficits. The recession would ‘officially’ end in November of 1982, by that time the S&P 500 had rallied 33% from its lows. The recession of the 80’s actually ended with the stock market higher than it was when the recession began! The best returns were yet to come however, as the S&P 500 would rally for the next 5 years without a correction of 20%, or more.
Sentiment can change quickly, in either direction, and no apologies will be given afterward. This is yet another reason why I use soulless and unemotional indicators to keep me heading in the ‘right ‘direction. I have thrown out my (office) TV so the ‘talking heads’ will not influence my decision making. The supply-demand relationship indicated that demand was taking control in mid March (2009). The market rallied into mid-June and then took a breather to digest the move. Mid-July saw a resumption of the market’s upward move. I don’t know what the future holds, but I will continue to rely on the tools that have served me well thus far.
As an aside; a client called several months ago because they were alarmed that a TV commentator had said that the rally was not ‘good’. I have been in this business since 1983 and have come to appreciate all market rally’s….When I inquired why the media figure did not like the rally – the answer was that there was not much cash going into the market. Again, insight gained over 26+ years has shown me that I want to be invested before all the cash comes pouring in – not the other way around.
If you know anyone who you feel would benefit from a logical and organized approach to investing – feel free to pass along this link.

Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.