War in the Ukraine and the Middle East, inflation spikes in twenty twenty and twenty one. What is the financial impact of global conflict and rising prices?
The answer might surprise you.
And I'm I'm Barry Ridults, and on today's edition of At the Money, we're going to discuss whether war and inflation somehow adds up to higher portfolio prices. To help us unpack all of this and what it means for your investments, let's bring in Jeff Hirsh. Not only is he the editor in chief of this stock Trader's Almanac, he is the author of the twenty eleven book super Boom, Why the Dow Jones will hit thirty eight eight twenty
and How you Can Profit from It. Full disclosure, I was privileged to write the forward to that book, and I have been delighted to see it more or less come true. So let's start with your dad, Yale Hirsh, who founded the stock traders Amanac sixty years ago. In nineteen seventy six, he predicted a fifteen year super boom, a five hundred percent move in the stock market. At the time, it wasn't especially well received. In fact, it was fairly widely mocked. But not only did he turn
out to be right. By two thousand, the move was one thousand percent. Explain your dad's thinking about how war plus inflation equals a stock bull market.
Well, I was a wee lad back then, but I remember the T shirts that now thirty four to twenty T shirts. I still have a box of mediums in the past, but my kids can wear it, but not me. So coming off the the you know, generational low in nineteen seventy four that everyone knows, which.
Was seventy three to seventy four band market was as vicious as the financial.
As seven awight, as vicious, and perhaps more so because it was a little bit fresher.
It was.
It was a little bit.
It was also in the middle of a long bear market as opposed to coming off of market highs.
True, we had been coming down for a few years, but in sixty six or sixty eight, depending upon where you went to. Yeah, yeah, But what he observed looking at at history long history, being a student of the four year cycle for year president election cycle and the decentil patterns, and having you know, written the almanac for several years, and just being an avid researcher. He's discovered that after war and you know, we're in the Vietnam War.
We were just coming out.
We had the April seventy five coming out of you know, Saigon, that horrific you know, steamed with the helicopters over the end of remembers, and we had, you know, the oil embargo which you and I probably both remember, the odd and even, And what he observed was that after these previous big you know, international conflagrations war World War One and World War Two, that after this this war period, there was inflation stimulated by government spending, and then after
the inflation leveled off, the market went into this rally of five hundred percent or more following war excision.
That's more than a rally, that's a full blown bull market, five hundred secular. So I'm glad you use that term to different than a shorter term cyclical market within a longer term secular. So what were the numbers like after World War One and after World War Two?
The numbers it was about just around five hundred and seventeen five twenty one right in the just over five hundred.
Percent both following both wars.
Following both wars unbeknownst to him, after the Vietnam War and the inflation that came from you know that.
That vol fargo and all rest and all the rest.
It ended up being the better part of fifteen hundred and two thousand percent going all the way up to the top in neither ninety eight or two thousand if you want to measure it to there. His forecast, his prediction was for dow thirty four to twenty by nineteen ninety.
That was five hundred percent from from the beguits.
From the inchry day low of the Dow on December sixth, of memory serves, nineteen seventy four. And the Dow didn't actually hit that number until it was July of nineteen ninety two. But the SMP had the five hundred percent move and like that it was May of ninety ten.
And that's really the more important July.
Nineteen ninety It did it in nineteen ninety.
So, you know, I remember when you and I were, you know, talking about the forward, and I had showed you the old you know, newsletters that he that he
put up called smart money back then. And in January seventy seven he put out a special report called invitation to a super boom, which was you know, taking all of the research that had been done and the articles that were written throughout seventy six and putting in together a little package to you know, give to subscribers and to promote what he was talking about there, and we put those pictures in there. You know, he's got some hand drained lines on the old you know overhead projector
you know, transparency. And then you know, as we were going through the financial crisis seven o eight, also looking back to the the two nine to eleven situation and then go into Afghanistan and all that stuff. Looking at that, we were tracking this this you know, long secular bear market pattern, and you know, after the bottom in nine, you know, we're looking at things in early twenty ten, we're saying this is setting up again.
Coming out of the financial crisis of fifty six percent peak to trough sell off. You're looking at what just took place. We've been in Afghanistan really soon after nine to eleven, it's almost a decade. And then around the same time, we've been in Iraq for about seven years. We had a bout of inflation in seven eighth nine. What are you thinking when you look out over the next fifteen years. From the perspective of twenty ten, twenty eleven, we.
Weren't looking out initially fifteen years. What we were witnessing. What we were observing was a similar chart pattern.
It was. It was chart pattern recognition.
Looking at the image that you know you've seen in the book of Yale's chart and seeing the same thing.
That's one hundred year chart that shows you war inflation and several five hundred percent.
I think I think Josh called it, you know, the greatest chart you know he's ever seen, or ever was something like on Earth or something like that at one point. But it's it's a log scale, so you can see, you know, the moves relative of the different time frames. But looking at that, you could see it setting up
again coming off the the nine bottom. We just you know, crunched numbers, did research, went back and you know, read all the old stuff that he wrote, went through the old almanacs, and we're like, this is happening again.
So let's let's take this apart and see if we can rationalize why this might happen. In the past, governments have talked about the peace diven end when the Berlin Wall came down as an example. The shift of government spending from the military and the Pentagon to civilian usage. Is that part of the thinking behind this.
It does play a part, you know in there, but the spending from the war, and I think this time around the COVID spending is similar.
It's government spending period.
It just puts a lot of money into the economy, enables a lot of development.
You're totally anticipating my next question, which which is how parallel is the war on COVID, the pandemic, lockdown, pent up, demand, terrible sentiment, carestacked one was ten percent of GDP. We've spent four depending on whose numbers you rely on, four or five, six trillion dollars inane and then we have a giant nine to ten percent spike in inflation COVID plus inflation.
How parallel is this to what so.
Following World War one, World War two, and Iraq in Afghanistan.
I think it's it's incredibly parallel.
One of the things that that the current cycle didn't have from the previous cycles was the inflation we had very.
Long, like a little bit during the very Lember, oil ran up to one hundred and fifty barrels and meat, but it didn't milk got crazy expenses, but it didn't.
Come through to the you know, the regular CPI, you know, minus food and energy.
Because housing appeared to be disastrous, so that was why it. By the way, there's a crazy thing about owner's equivalent rent that when real estate prices go up, depending on the circumstances, sometimes OEER goes down dramatically, especially when rates are low, and they'll give anybody a mortgage.
So CPI, which happened back in COVID. Who didn't refinance the US government?
Right? We all the rest of us did.
That's exactly right.
So how much of this is sort of like a wartime? You know, there was rationing, there's supply chain issues, there's a ton of pent up demands and a lot of negative sentiment, and then when.
The dam breaks, it seems like everybody goes crazy.
It's so parallel to me. I could not have imagined COVID back in twenty ten when I first made this forecast, we were thinking only you know, large military involvement overseas. It's going to take a lot of spending, and you know,
when that's over, we'll get that relief rally. The other thing that I add to the equation that you know, I my father didn't articulate as clearly, but having you know, the benefit of hindsight standing on his shoulders, you know, the equation the war plus inflation equals super boom or
bull market. As you you know you've put it, is technology and something I the phrase that I came up with culturally enabling paradigm shifting technology, which you know, indoor plumbing, the automobile, airc conditioning, air travel, the microprocessor, the internet, you know, all the global So it's not just biotechnology, energy whatever, now AI and now AI and exactly, it's not just one thing. It's a it's a cocktail of different technologies that drive productivity and the next boom, the
next boom and new developments. And I think that's where we're at right now. I'm so glad you said that. Whenever I try and explain to people the difference between a secular expansion, a secularble market, and a cyclical I always go back to your dad's post World War two chart. And I like to tell people, you know, when World War Two ended, forty two million GI's return home. They have the GI bill that puts them through college.
That's where he got his degree. In the GENI bill.
You have the expansion of suburb you're the rise of the automative internet culture, the interstate highway system, interstate highway system, the rise of civilian air travel, the rise of the elect tronic industry which we don't think about anymore, television, radio, dishwashers, washing machines that didn't exist before the war, and any at least not any And you combine all those things, you have a twenty year economic expansion plus the baby boom on top of it.
What a great time to be an investor.
And then after go ahead.
Now and then the last thing I was going to say is today centiment is very negative. Social media is a cancer. Social media is a cancer on us. What regular media does a terrible job covering the economy.
That they are trying to compete with social to get And the question.
I always like to ask people whenever we see political polling is who the hell is answering the landline at home except cranky old grandpa who just watched Fox News? And is youll at the kids get off.
Who are voting for it?
They all talk goodbye?
Like, I hate those that sort of stuff. But it leads to a fascinating question, which is people might be unhappy, but you have a massive technological boom, a ton of fiscal spending and an enormous amount of corporate productivity and very low debt. What's might we be looking at another super boom. We're in it, We're in it, We're already in What inning is this?
You know what it's It's hard to tell. We're at least in the middle of it. We could be getting towards the end of it, at least for this for this cycle. You remember after the nifty to fifty in the late sixties, right, there was this secular bear market ahead of the oil on bargo.
I use sixty six to eighty two is my phrase, as my range.
Some people look at sixty eight works, but it's like fifteen plus minus years.
Which is hissing.
The ultimate low was seventy four, right, But everyone says that on nine was the beginning of the.
Of the It's absolutely nottely.
I think twenty sixteen was that little bear mark.
Twenty thirteen we said a new high in the SMP going back to a one. That's the start of the new bull market for me.
Or somewhere in the thirteen to sixteen period where we had that little tiny mini bear market from fifteen to February twenty sixteen.
Net barely down eighteen nineteen seventy eighteen, nineteen point nine. Either way, it's such a normal pullback.
The twenty percent number is meaningless.
But I'm starting to think where we're like fifth inning, sixth dinning.
Maybe even a little bit further up there.
I think by the time we get into twenty five twenty six, we could start looking at, uh, you know, another stock pickers sideways trading market for for many years to come, or at least you know, a handful. The thing with these cycles, you know, people have what you said, sixty six to eighty two. People want to look at this eighteen year cycle, seventeen and a half recycle.
It's more.
And the thing that we pointed out on this chart is that it's impacted by events like the bull market after World War Two was short. It was it was eight years, the Roaring twenties, Okay, then you had you know, the World War one, sorry correction, thank you, world War one, and then the depression and the whole secular bear market before you know, we're worked. It was twenty five years. Okay,
So these things aren't necessarily the same timeframe. We could have a secular bear market, you know, after this we get them the super boom level or a little bit past it, you know. For it could be a few years. It could be five, six, seven, eight, It could be you know, fifteen twenty. We have to see what I think it will be. On the shorter end of things. I think all these cycles have compressed with the productivity, and we're going to get more compression with AI and
all the technology. So I don't think it's going to be a super long depression, despite some of the real you know, pollyannas out there.
So to wrap up, there's an incalculable and terrible cost of war in lost lives and physical and emotional injuries. Global conflicts and war just exert a horrific cost on society. Analysts who've studied this have found that the joys of peace when war ends go beyond the relief of ending human suffering. Peace often leads to strong economic growth and large subsequent gains in stock markets. I'm Barry Results, and you've been listening to Bloomberg's At the Money