Trying to compare decades about one hundred years apart seems foolish but the comparisons between the beginning of the 1920s and the 2020s are striking most obviously because both periods were dealing with a pandemic.
There are other similarities such as technology breakthroughs that changed society and there are, inevitably, many dissimilarities between the two times.
So a report by Ed Yardeni of Yardeni Research entitled Another Roaring Twenties May Still Be Ahead intrigued us to the point that we present some excerpts here of his more salient points and whether the stock market is somewhere along the line of a melt-up as happened in the latter 1920s resulting, as we know, in a stock market crash and subsequent Great Depression.
Unless you’re shorting the market, let’s hope that scenario doesn’t rhyme over the next several years.
Here are some passages from Yardeni’s report:
We always seem to be living in unprecedented times, according to conventional wisdom, mostly because we don’t spend enough time studying history.
There’s certainly a precedent for our current times in the past, one that was truly unprecedented back then.
World War I was followed by the Spanish Flu pandemic of 1918, which infected an estimated 500 million people and killed as many as 50 million.
Given that the world population was 1.8 billion back then, that implied a 28% infection rate and nearly a 3% death rate.
Both stats are currently significantly lower for the COVID-19 pandemic. Today, the global population is 7.5 billion. There have been 20 million cases and 735,000 deaths worldwide as of August 10.
The good news is that the bad news during the previous precedent was followed by the Roaring Twenties.
So far, the 2020s has started with the pandemic, but there are plenty of years left for the prosperous 1920s to become a precedent for the current decade.
If so, the driver of the coming boom will be technology-enhanced productivity, as it was during the 1920s.
Consider the following:
(1) Technology during the 1920s.
In 1920, 51% of the US population lived in cities, up from 23% in 1870. This remarkable urbanization was enabled by innovations in electricity and plumbing. Electric grids provided clean, bright light without emitting smoke.
- Urban water networks supplied clean water, and sewer systems removed waste without the pungent odors of chamber pots and outhouses. Telephones allowed people to converse with distant friends.
- Henry Ford’s Model T, built between 1908 and 1927, was the first car invented and helped people to live an easier life by making transportation easier and faster.
- Streetcars and subways were in all the major cities by 1920. Intercity trains were becoming steadily faster and more reliable.
- Ford’s assembly line innovation boosted productivity in many manufacturing industries.
- Increasingly, anything not available in a local store could be obtained by a mail-order catalog. The catalog business was helped along by Parcel Post, which arrived in 1913.
- Penicillin is considered one of the most important inventions to come out of the 1920s. The antibiotic kills or prevents the growth of bacteria.
- The bulldozer—used today in all kinds of construction the world over—was invented in 1923 originally to dig canals.
(2) Technology during the 2020s.
Today’s doomsters could be confounded by biotechnological innovations that deliver not only a vaccine for COVID-19 but for all coronaviruses.
- Scientists are investigating a dizzying array of approaches to fight COVID-19. Hopefully, beyond finding a cure or a vaccine, one of the beneficial outcomes of all this research will be that scientists learn many more ways to combat illnesses in general and viruses in particular.
- The awesome range of futuristic “BRAIN” technological innovations includes biotechnology, robotics and automation, artificial intelligence, and nanotechnology. There are also significant innovations underway in 3-D manufacturing, electric vehicles, battery storage, blockchain, and quantum computing, as I wrote in my book Predicting the Markets.
- High-tech spending on IT equipment, software, and R&D rose to a record $1.32 trillion during Q2-2020 .
The 2020s differ from the 1920s in several important ways. As noted above, urbanization increased significantly during the 1920s.
It’s too soon to be sure, but one of the initial reactions to the COVID-19 pandemic could be de-urbanization, which has already sparked a boom in demand for existing and new homes in the suburbs and rural areas of the country.
If that trend continues, it might contribute to the Roaring 2020s. De-urbanization could also boost auto sales, especially of hybrids and electric vehicles.
Perhaps the biggest difference between the 1920s and the 2020s are the structure of the US economy and the size of our government.
During the 1920s, the White House was occupied by two laissez-faire Republican presidents. Warren Harding (1921-23) who cut marginal tax rates and deregulated business.
By late 1922, the economy started to rebound from the recession at the start of the decade. Calvin Coolidge (1923-29) was Harding’s vice president and replaced him when Harding died suddenly. “Silent Cal” didn’t say much, but he clearly believed in small government.
One thing he famously said: “After all, the chief business of the American people is business. They are profoundly concerned with producing, buying, selling, investing and prospering in the world.”
Business Friendly Big Government
President Donald Trump has cut taxes and deregulated business, carrying on the tradition of his predecessors of the 1920s.
However, he is hardly a believer in laissez-faire economics, as evident from his trade policies and his various economic interventions. In addition, unlike Harding and Coolidge, he isn’t troubled by Big Government and huge federal deficits.
The Great Virus Crisis (GVC) has naturally selected certain industries as winners and others as losers from the pandemic’s fallout.
The winners literally have carried the most weight in the S&P 500 and led the 50.2% rally in the index since it bottomed on March 23 through Monday’s close of 3360.47, a hair below the all-time high.
Stock investors can rejoice that Big Government is their friend—for now. The risk is that the stock market’s exuberance turns increasingly irrational, resulting in the Mother of All Melt-ups. That could be followed by the Mother of All Melt-downs.
It’s not too hard to imagine what could possibly go wrong for that to happen:
- Vaccines don’t work to stop the pandemic.
- Violent civil unrest worsens.
- Extreme political partisanship gets more extreme.
- The Cold War between the US and China rapidly heats up.
- A game of chicken between the US and Iran in the Strait of Hormuz leads to a military confrontation.
- Out-of-control fiscal and monetary policies get even more out-of-control.
- A radical left-wing regime change occurs on November 3.
- Inflation makes a surprising comeback.
The 1920s ended with a stock market melt-up followed by a melt-down. The 2020s may already be seeing a melt-up, begun on March 23.
We live in interesting, though not unprecedented, times. The Roaring 1920s could be a precedent for the Roaring 2020s.
As Mark Twain observed: “History doesn’t repeat itself, but it often rhymes.”
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