The expectation among media outlets is for a return to economic growth. From Wall Street, we see the usual cheerleading, but what about you? What are the critical decisions your family should consider in the context of stewardship?
The McAlvany Financial Group was founded in 1972, in the midst of a politically and economically tumultuous time in our nation’s history. Since then we have successfully guided clients through good times and bad, and presently find ourselves again in a period of change on a grand scale. A short narrative will illustrate the role we have played and continue to play in the lives and fortunes of our clients.
The events of the late ’60s and early ’70s brought ruin to many investors. Our instinct as a family was to appraise those events and look for cause and effect. Our appraisal was (and remains) a holistic one, informed by our worldview and overlaid with an appreciation for current events seen in a historical/Biblical context. We viewed owning gold as a necessity for the economic and political times immediately ahead. Different than most, we assumed that the powers in office were not actually in control of circumstances.
The consequence of this view was wise and prosperous decision making for our clients, as gold increased 2,500% and silver 2,700%. We viewed politics from a different vantage point, and saw economics and finance through a more skeptical lens. That view served us well through our early years, enabling our clients to survive and prosper, even as the world was turned upside down.
Will we have similar challenges in the years immediately ahead of us? To answer this question, consider briefly the events of that earlier time.
Events in the ’60s and ’70s
America emerged from the Johnson presidency with a heavy weight of social programs and an unclear path out of Vietnam. Guns and butter both have cost, so the impending inflationary outcomes were, in our view, inevitable. There were numerous challenges faced by the Nixon, Ford, and Carter administrations (all squeezed into the decade of the ’70s), but the biggest change was not in political office, but rather with the men behind the scenes—those paying our ever-increasing bills.
Inflation was low as we started into the 1970s. This was in large measure due to the tenure of William McChesney Martin, the Chairman of the Federal Reserve System from 1951 to 1970. He famously described the central bank’s duty as “taking away the punch bowl” whenever the economy started looking like an out-of-control party. That was an era when the Fed Chairman was unknown—or at least not known for giving into the temptations of excess money (liquidity) creation. But from the time of his departure, we began to see our central bank leadership add to the punch bowl (a coup de whiskey) in an effort to stimulate growth and extend the good times of the mid-to-late ’60s beyond the natural business cycle of growth followed by decline.
Interventionism (propping up the system with cheap money), was codified by Martin’s successor, Federal Reserve Chairman Arthur Burns, and later perfected by the likes of central bank leaders Alan Greenspan and Ben Bernanke. Things seemed to be fine in the early ’70s, and the monetary mandarins appeared to be guaranteeing growth and prosperity via the printing press—the equivalent of our modern-day quantitative easing so much in the news today. By the mid ’70s, the official statistics showed virtually no inflation, a stable dollar, and the stock market on the mend after a horrific 45% decline. Prices recovered, and visions of a brighter tomorrow returned. However, the clock was ticking; the worst was yet to come.
We ended the decade of the 1970s with a very different feeling in the air. The dollar had been through a meat grinder; the stock market had suffered from a decade of high volatility, no growth, and an inflationary surprise in the last few years that made total returns deeply negative for the decade. Numerous presidents had lost their authoritative voice through one failure of leadership after another (Vietnam was the inherited quagmire that started the decade; the Iran hostage crisis—444 days of national embarrassment and angst—put icing on the cake). All this became the obvious headline news, with pessimism replacing the optimism which was felt at the beginning of the decade.
Events Today
Fast-forward to the present, we find a semblance to the era of the 1970s: tensions in the Middle East (growing by the day), slow growth in the world economy, stagnant growth in the equities market (with no more than a 1% gain per year since 2000), massive money printing by the Fed (and from other world central banks), and more debt in the system than the world has ever seen. History never repeats itself exactly, but the similarities from one era to the next are instructive for those who pay attention. You could say it rhymes.
Government and central bank intervention in the business cycle then and now are powerful forces, yet they are not omnipotent. Money printing then and now is ultimately inflationary and comes at a high cost to the middle class and savers dependent on a fixed income (just like the “stagflationary” period of the ’70s, with rising costs and stagnant wages). Leadership in the highest offices in the land was then and is now devoid of clear direction and goals—unless you count the grinding down of the country’s most productive elements a “clear direction.”
What Does the Future Hold?
Of course, the expectation among media outlets is for a return to growth. From Wall Street, we see the usual cheerleading, regardless of the context—rain or shine. But what about you? What is the appraisal you should make today? What are the critical decisions your family should consider in the context of stewardship? Our role is one of partnership and strategic decision making, regardless of the context in which we find ourselves. We don’t mind rain any more than we appreciate the sun shining—having a raincoat and an umbrella are simply a matter of preparation.
We regard modern times as an exceptional opportunity to live and flourish in every facet of life, facing challenges as possibilities for growth. Spiritual maturity, emotional maturity, maturity in stewardship—these require thoughtful and patient development and use.
Things are not always as they seem. It often takes the curious and the discerning to figure out what in the world is happening. That is our job, that is our legacy.
