0:04

War in the Ukraine and the Middle East,

0:06

inflation spikes in twenty twenty

0:08

and twenty one. What is

0:10

the financial impact of global

0:12

conflict and rising prices?

0:15

The answer might surprise you.

0:22

And I'm I'm

0:26

Barry Ridults, and on today's edition of

0:28

At the Money, we're going to discuss

0:31

whether war and inflation somehow

0:34

adds up to higher portfolio prices.

0:37

To help us unpack all of this and what it means

0:39

for your investments, let's bring

0:41

in Jeff Hirsh. Not only is

0:43

he the editor in chief of this stock Trader's Almanac,

0:46

he is the author of the twenty eleven

0:48

book super Boom, Why

0:50

the Dow Jones will hit thirty eight

0:53

eight twenty and How you Can Profit

0:55

from It. Full disclosure, I

0:57

was privileged to write the forward to that book,

1:00

and I have been delighted to see

1:02

it more or less come true. So

1:05

let's start with your dad, Yale Hirsh, who

1:07

founded the stock traders Amanac sixty

1:10

years ago. In nineteen seventy

1:12

six, he predicted a fifteen

1:15

year super boom, a five

1:17

hundred percent move in the stock market. At

1:19

the time, it wasn't especially

1:22

well received. In fact, it was fairly

1:24

widely mocked. But not

1:27

only did he turn out to be right. By

1:30

two thousand, the move was one thousand

1:32

percent. Explain your

1:34

dad's thinking about

1:36

how war plus inflation equals

1:39

a stock bull market.

1:41

Well, I was a wee lad back then, but

1:44

I remember the T shirts that now thirty

1:46

four to twenty T shirts. I still have a box

1:48

of mediums in the past, but my

1:51

kids can wear it, but not me. So

1:53

coming off the the you know, generational

1:56

low in nineteen seventy four that

1:59

everyone knows, which.

1:59

Was seventy three to seventy four band market was as

2:02

vicious as the financial.

2:04

As seven awight, as vicious, and perhaps

2:07

more so because it was a little bit fresher.

2:09

It was.

2:09

It was a little bit.

2:10

It was also in the middle of a long bear market

2:12

as opposed to coming off of market highs.

2:14

True, we had been coming down for a

2:16

few years, but in sixty six or

2:19

sixty eight, depending upon where you went to. Yeah,

2:22

yeah, But what he observed

2:25

looking at at history long history, being

2:28

a student of the four year cycle

2:31

for year president election cycle and

2:33

the decentil patterns, and having you know, written

2:36

the almanac for several years, and

2:38

just being an avid researcher.

2:41

He's discovered that after

2:44

war and you know, we're in the Vietnam War.

2:46

We were just coming out.

2:47

We had the April seventy five coming out

2:49

of you know, Saigon, that horrific you

2:51

know, steamed with the helicopters over the end of remembers,

2:54

and we had, you know, the oil embargo

2:57

which you and I probably both remember, the

2:59

odd and even, And what he observed

3:01

was that after these previous big

3:04

you know, international conflagrations war

3:06

World War One and World War Two, that after

3:09

this this war period, there was inflation

3:11

stimulated by government spending, and

3:14

then after the inflation leveled

3:16

off, the market went into this rally

3:19

of five hundred percent or more following war

3:22

excision.

3:23

That's more than a rally, that's a full blown

3:25

bull market, five hundred secular. So

3:28

I'm glad you use that term to different

3:31

than a shorter term cyclical market

3:34

within a longer term secular. So

3:36

what were the numbers like after World War One

3:38

and after World War Two?

3:41

The numbers it was about just

3:43

around five hundred and seventeen

3:45

five twenty one right in the just

3:47

over five hundred.

3:48

Percent both following both wars.

3:50

Following both wars unbeknownst

3:53

to him, after the Vietnam War and

3:55

the inflation that came from you know that.

3:57

That vol fargo and

3:59

all rest and all the rest.

4:01

It ended up being the better part of fifteen

4:03

hundred and two thousand percent going all the way up

4:05

to the top in neither ninety eight or

4:07

two thousand if you want to measure it to there. His

4:10

forecast, his prediction was for dow

4:12

thirty four to twenty by nineteen ninety.

4:14

That was five hundred percent from

4:16

from the beguits.

4:17

From the inchry day low of the Dow on December

4:21

sixth, of memory serves, nineteen

4:23

seventy four. And

4:26

the Dow didn't actually hit that number until

4:29

it was July of nineteen ninety two. But the SMP

4:31

had the five hundred percent move and like that it was

4:33

May of ninety ten.

4:34

And that's really the more important July.

4:36

Nineteen ninety It did it in nineteen ninety.

4:39

So, you know, I remember when

4:41

you and I were, you know, talking about the forward,

4:43

and I had showed you the old you

4:45

know, newsletters that he that he put up called

4:48

smart money back then. And in January

4:50

seventy seven he put out a special report called

4:52

invitation to a super boom, which

4:55

was you know, taking all of the research that had been

4:57

done and the articles that were written throughout seventy

4:59

six and putting in together a little package to you

5:01

know, give to subscribers and to promote

5:04

what he was talking about there, and we

5:06

put those pictures in there. You know, he's got

5:08

some hand drained lines on the old you know overhead

5:12

projector you know, transparency. And

5:14

then you know, as we were going

5:16

through the financial crisis

5:19

seven o eight, also looking back to the

5:21

the two nine to eleven situation

5:23

and then go into Afghanistan and all that stuff.

5:26

Looking at that, we were tracking this

5:28

this you know, long secular bear market

5:30

pattern, and you know,

5:32

after the bottom in nine,

5:35

you know, we're looking at things in early twenty

5:37

ten, we're saying this is setting up again.

5:39

Coming out of the financial crisis

5:41

of fifty six percent peak to trough sell

5:43

off. You're looking

5:46

at what just took place. We've been in Afghanistan

5:49

really soon after nine to eleven, it's almost

5:51

a decade. And then around

5:53

the same time, we've been in Iraq

5:56

for about seven years. We

5:58

had a bout of inflation in seven

6:01

eighth nine. What are you thinking

6:03

when you look out over the next fifteen

6:05

years. From the perspective of

6:07

twenty ten, twenty eleven, we.

6:09

Weren't looking out initially fifteen years.

6:11

What we were witnessing. What we

6:13

were observing was a similar chart pattern.

6:16

It was. It was chart pattern recognition.

6:17

Looking at the image that you know you've seen in

6:20

the book of Yale's chart and seeing

6:22

the same thing.

6:22

That's one hundred year chart that shows you war inflation

6:25

and several five hundred percent.

6:26

I think I think Josh called it, you know, the greatest

6:29

chart you know he's ever seen, or ever was something

6:31

like on Earth or something like that at one point. But

6:33

it's it's a log scale, so you can see,

6:36

you know, the moves relative of the different

6:38

time frames. But looking at that, you

6:40

could see it setting up again coming off the

6:43

the nine bottom. We just you know,

6:45

crunched numbers, did research, went

6:47

back and you know, read all the old stuff that

6:50

he wrote, went through the old almanacs,

6:52

and we're like, this is happening again.

6:53

So let's let's take this apart and see if

6:55

we can rationalize why this

6:57

might happen. In the past, governments

7:00

have talked about the peace diven end

7:02

when the Berlin Wall came down as

7:05

an example. The shift of government spending

7:08

from the military and the Pentagon

7:10

to civilian usage. Is that part

7:12

of the thinking behind this.

7:15

It does play a part, you know in there,

7:18

but the spending from the war,

7:20

and I think this time around

7:22

the COVID spending is

7:25

similar.

7:25

It's government spending period.

7:27

It just puts a lot of money into the

7:29

economy, enables a lot of development.

7:31

You're totally anticipating my next question, which

7:34

which is how parallel

7:36

is the war on COVID, the

7:38

pandemic, lockdown, pent up,

7:41

demand, terrible sentiment, carestacked

7:44

one was ten percent of GDP. We've spent

7:46

four depending on whose numbers you rely on, four

7:49

or five, six trillion dollars inane

7:51

and then we have a giant nine to ten

7:53

percent spike in inflation COVID

7:56

plus inflation.

7:57

How parallel is this to

7:59

what so.

8:00

Following World War one, World War

8:02

two, and Iraq in Afghanistan.

8:04

I think it's it's incredibly parallel.

8:07

One of the things that that the current cycle

8:09

didn't have from the previous cycles

8:12

was the inflation we had very.

8:14

Long, like a little bit during the very

8:17

Lember, oil ran up to one hundred and fifty barrels

8:20

and meat, but it didn't milk got crazy expenses,

8:23

but it didn't.

8:23

Come through to the you know, the regular

8:25

CPI, you know, minus food and energy.

8:28

Because housing appeared to be disastrous,

8:31

so that was why it. By

8:33

the way, there's a crazy thing about owner's equivalent rent

8:36

that when real estate prices go up, depending

8:38

on the circumstances, sometimes OEER

8:41

goes down dramatically, especially

8:43

when rates are low, and they'll give anybody a mortgage.

8:46

So CPI, which happened back

8:48

in COVID. Who didn't refinance

8:50

the US government?

8:52

Right? We all the rest of us did.

8:53

That's exactly right.

8:55

So how much of this is sort

8:57

of like a wartime?

9:00

You know, there was rationing, there's supply

9:02

chain issues, there's a ton of pent

9:04

up demands and a lot of negative

9:06

sentiment, and then when.

9:08

The dam breaks, it seems like everybody

9:10

goes crazy.

9:12

It's so parallel to me. I could not

9:14

have imagined COVID back in

9:16

twenty ten when I first made this forecast, we

9:20

were thinking only you know, large

9:22

military involvement overseas. It's

9:24

going to take a lot of spending, and you

9:27

know, when that's over, we'll get

9:29

that relief rally. The other thing that I

9:31

add to the equation that you know, I

9:33

my father didn't articulate as clearly,

9:36

but having you know, the benefit of hindsight

9:38

standing on his shoulders, you know, the equation

9:40

the war plus inflation equals

9:43

super boom or bull market. As you

9:45

you know you've put it, is technology

9:49

and something I the phrase that I came up

9:51

with culturally enabling paradigm shifting

9:53

technology, which you

9:56

know, indoor plumbing, the

9:58

automobile, airc conditioning,

10:00

air travel, the microprocessor,

10:03

the internet, you know, all the global

10:06

So it's not just biotechnology,

10:08

energy whatever, now AI and now

10:11

AI and exactly,

10:13

it's not just one thing. It's a it's

10:15

a cocktail of different technologies

10:18

that drive productivity and the

10:20

next boom, the next boom and new

10:22

developments. And I think that's where we're at right now.

10:24

I'm so glad you said that. Whenever

10:26

I try and explain to people the difference

10:29

between a secular expansion,

10:31

a secularble market, and a cyclical

10:34

I always go back to your dad's post

10:36

World War two chart. And

10:39

I like to tell people, you know, when

10:41

World War Two ended, forty two

10:43

million GI's return home. They

10:45

have the GI bill that puts them through college.

10:48

That's where he got his degree. In the GENI bill.

10:50

You have the expansion of suburb you're the rise

10:52

of the automative internet culture, the interstate

10:54

highway system, interstate highway system, the rise

10:57

of civilian air travel, the rise

10:59

of the elect tronic industry which

11:01

we don't think about anymore, television,

11:06

radio, dishwashers, washing

11:08

machines that didn't exist before the war, and any

11:11

at least not any And you combine

11:13

all those things, you have a twenty

11:16

year economic expansion plus

11:18

the baby boom on top of it.

11:21

What a great time to be an investor.

11:22

And then after go ahead.

11:24

Now and then the last thing I was going to say is today

11:28

centiment is very negative. Social media

11:30

is a cancer. Social

11:33

media is a cancer on us. What

11:36

regular media does a terrible job

11:39

covering the economy.

11:41

That they are trying to compete with social to get

11:43

And the question.

11:44

I always like to ask people whenever we see political

11:46

polling is who the hell is answering

11:49

the landline at home

11:51

except cranky old grandpa who

11:54

just watched Fox News? And is youll at the kids

11:56

get off.

11:56

Who are voting for it?

11:57

They all talk goodbye?

11:59

Like, I hate those that sort of stuff. But

12:01

it leads to a fascinating question, which

12:04

is people might

12:06

be unhappy, but you have a massive

12:08

technological boom, a ton

12:10

of fiscal spending and an

12:13

enormous amount of corporate

12:15

productivity and very

12:17

low debt. What's

12:19

might we be looking at another

12:22

super boom. We're in it,

12:24

We're in it, We're already in What inning is

12:26

this?

12:27

You know what it's It's hard to tell. We're

12:29

at least in the middle of it. We could be getting

12:31

towards the end of it, at least

12:33

for this for this cycle. You remember after the nifty

12:35

to fifty in the late sixties,

12:38

right, there was this secular

12:41

bear market ahead of the oil

12:43

on bargo.

12:44

I use sixty six to eighty two is my phrase,

12:46

as my range.

12:47

Some people look at sixty eight works, but

12:49

it's like fifteen plus minus years.

12:51

Which is hissing.

12:52

The ultimate low was seventy four, right, But everyone

12:54

says that on nine was the beginning of the.

12:56

Of the It's absolutely nottely.

12:58

I think twenty sixteen was that little bear mark.

13:00

Twenty thirteen we said a new high in the SMP going

13:02

back to a one. That's the start of the new bull

13:04

market for me.

13:06

Or somewhere in the thirteen to sixteen

13:08

period where we had that little tiny mini

13:10

bear market from fifteen to February

13:12

twenty sixteen.

13:13

Net barely down eighteen nineteen

13:15

seventy eighteen, nineteen

13:18

point nine. Either way, it's such

13:20

a normal pullback.

13:21

The twenty percent number is meaningless.

13:23

But I'm starting to think where we're

13:25

like fifth inning, sixth dinning.

13:27

Maybe even a little bit further up there.

13:29

I think by the time we get into twenty five twenty

13:31

six, we could start looking at, uh, you

13:33

know, another stock pickers sideways trading

13:35

market for for many years to come, or

13:38

at least you know, a handful. The thing with these

13:40

cycles, you know, people have what you said,

13:42

sixty six to eighty two. People want to look at this eighteen

13:45

year cycle, seventeen and a half recycle.

13:47

It's more.

13:48

And the thing that we pointed out on this chart

13:50

is that it's impacted by events like

13:52

the bull market after World War Two was short.

13:54

It was it was eight years, the Roaring twenties,

13:57

Okay, then you had you know, the World

13:59

War one, sorry correction, thank you, world War

14:01

one, and then the depression and

14:03

the whole secular bear market before you

14:05

know, we're worked. It was twenty five years.

14:08

Okay, So these things aren't necessarily

14:10

the same timeframe. We could have a secular bear

14:13

market, you know, after this we get

14:15

them the super boom level or a little bit past it, you

14:17

know. For it could be a few years. It could be five, six,

14:19

seven, eight, It could be you know, fifteen

14:22

twenty. We have to see what I

14:24

think it will be. On the shorter end of things. I think all these cycles

14:26

have compressed with the productivity, and we're

14:28

going to get more compression with AI and

14:30

all the technology. So I

14:33

don't think it's going to be a super long depression,

14:36

despite some of the real you

14:38

know, pollyannas out there.

14:42

So to wrap up, there's an incalculable

14:45

and terrible cost of war in

14:47

lost lives and physical and emotional

14:49

injuries. Global conflicts and

14:51

war just exert a horrific

14:54

cost on society. Analysts

14:56

who've studied this have found that the

14:58

joys of peace when war ends

15:01

go beyond the relief of ending

15:03

human suffering. Peace often

15:05

leads to strong economic growth

15:08

and large subsequent gains

15:10

in stock markets. I'm Barry

15:12

Results, and you've been listening to Bloomberg's

15:15

At the Money