The Great Depression Online




Great Depression Online Archive Issue:

Confessions of a Touch and Go Economy

Great Depression Online
Long Beach, CA
January 23, 2009

Inside This Issue You Will Discover…

*** A Little Research Experiment
*** The Lost Decade
*** Confessions of a Touch and Go Economy
*** And More

A Little Research Experiment

Some years ago a buddy of ours took up the trade of tattoo artist for a living.  He didn’t know much about it…nor was he much of an artist…but he reckoned it was a booming industry to go in to.  So he purchased a tattoo gun from a local pawn shop and began practicing on his legs.

Things were a little touch and go for the guy at the time.  He’d recently gotten the boot from Motorola.  He’d been thrown in the hoosegow for driving drunk and had neglected to tell them a company van was sitting in the impound yard racking up fees.

After that he went to work for a local hotel driving the shuttle van to and from the airport.  His second day on the job he conducted a little research experiment.  He put to test the theory that it’s impossible for others to smell vodka on your breath. 

Like most economic theories, it failed miserably…he was ushered out the door before noon.

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Last we heard he was wrenching on motorcycles, in an Anaheim garage, for a team that competes in the Baja 1000.  If you’ve never heard of the Baja 1000, it’s where a bunch of lunatics ride motorcycles through the Mexican desert of northern Baja in a 1000 mile race each fall. 

The work seemed to suit the guy.  And the last time we talked to him – about three years ago – things were looking up…he’d just bought a plasma TV.

The Lost Decade

Still, we can’t forget what things were like when we first met what many would consider a lost cause.  For things were a little touch and go for us at the time too.  Several years before we’d embarked on an incredibly misguided, misadventure to the bottom of the barrel.  Yet for the life of us, we just couldn’t seem to claw our way out. 

And just when things seemed like they couldn’t get much worse…they did.  And then they got worse again.  And again.

Shortly after our 21st birthday, though, when all hope was lost, with a little help from our fellow man and the good lord above, we were able to put the plug in the jug and pull ourselves up by what was left of our bootstraps.  In fact, it was 10-years ago yesterday – January 22, 1999.

Interestingly enough, the DOW traded at 8,998 on that fateful day.  Yet yesterday it was at just 8,122.  Over the last 10 years buy and hold investors have lost 9.7 percent…making it a lost decade of negative returns.

But when looking back the 10 years before – January 22, 1989 – we see the DOW was trading at just 2,218.  Over that 10 year stretch buy and hold investors garnered a hefty 405 percent return.

Confessions of a Touch and Go Economy

What this all means, we don’t exactly know?  But when you apply this confession to that of our touch and go economy, you can draw several parallels…

1.  Over long periods of time markets generally go up.  So, too, over seemingly long periods – 10-years or more – markets can go down.

2.  During an extended bull market buy and hold investing works great.  But at other times, and what your mutual fund broker likely neglected to tell you, buy and hold investing is an utter disaster.

3.  When the credit cycle has peaked – like now – giving an economy more credit no longer works to stimulate growth or demand.  For mistakes must be corrected…errors must be reconciled…and, above all, the books must be reckoned.

4.  No matter how bad an economy may seem…it can always get worse.  And then worse again.  And again.  Particularly when retarded by government action like that of Hoover and FDR during the Great Depression.

5.  Yet when all hope is lost, somehow, someway, by the worn leather of its bootstraps, economic growth returns.

Will the DOW be higher on January 22, 2019, than today?

Maybe.

So, too, maybe not.

Sincerely,

M.N. Gordon
Great Depression Online

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