Here is an portion of this article.
financialsense.com
With Buffet on the sidelines in 1970, the market entered a high-level, churning phase that lasted for three years. The stock market churned sideways for the entire period. Most stocks fell with the exception of the “Nifty Fifty” stocks like Polaroid, Xerox, and Avon. What finally triggered the bear market of 1973-74 was a series of geo-political events that Wall Street and manic investors had not foreseen. It began with a series of rogue waves: the Yom Kippur War that erupted on October 6, 1973, the Arab oil embargo against the U.S. for supporting Israel in that war, and Watergate with the subsequent resignation of President Nixon the following year. These three exogenous events kicked the remaining legs of the bull and brought the market to its knees. Investor confidence was broken and would not return until the 1980’s under Ronald Reagan.
Déjà vu
Recalling these events I can’t help but reflect on the similarities in today’s current market environment. Like then, today’s market is dominated by a select group of high valuation stocks that mirror the “Nifty Fifty” stocks of the early 70’s. Today we are experiencing déjà vu with current events in the Middle East and oil occupying headlines and the evening news. As with Arthur Burn’s Fed chairmanship in the 70’s, the monetary spigot at the Fed is running at full throttle. Since taking over as Fed Chairman thirteen years ago, Alan Greenspan has allowed the money supply to expand by $3.25 trillion – more than any of his predecessors combined since the creation of the Federal Reserve in 1913.
Today’s Prosperity at Any Price
It is no different today. The “powers that be” are intervening in just about every market. The Plunge Protection Team is active in coaxing a floor underneath a dipping market. Their fingerprints can be observed in the market for the last three consecutive weeks. The Treasury is actively involved in suppressing long-term interest rates buying longer-dated government bonds. The Clinton Administration is trying to control the domestic price of oil through the release of the Strategic Petroleum Reserves. The Bureau of Labor Statistics is busy churning out creative numbers that overstate GDP growth and productivity, while the Labor Department understates inflation. Finally, the bullion banks are busy suppressing the price of gold through their derivative books.
It may be that markets can be manipulated in the short-run by financial and government leaders, but history reveals that markets will exert their own pressure in the long-run. As I wrote in Part 1 of Rogue Wave/Rogue Trader, there will come a day unlike any other – an event the markets don’t anticipate – an incident the manipulators can’t control – it will be a rogue wave. This wave will overwhelm the markets and those in power will be powerless to stop it. It will be beyond their control. It will shatter public confidence in much the same way as the Yom Kippur War, the Arab oil embargo, Watergate and President Nixon’s resignation in 1973 and 1974. |
