Little Bits of History RepeatingOct 27, 2021
Just little bits of history repeating
Mark Twain may or may not have said history may not repeat itself but it rhymes. Shirley Bassey certainly said it with her History Repeating song with the Propellerheads.
Either way, can we look back at different times in history and apply them to what’s going to happen today?
Back in August when we witnessed the eerie and tragic similarities between the US withdrawal from Afghanistan and Vietnam, it has certainly reminded us all that history may indeed repeat itself:
If history were to repeat itself, then having a look back at the stock market returns can make for some sobering reading. In January of 1966 the Dow Jones Industrial Average hit a level of 990. It would continue trading in a range of roughly 600 to 1,000 over the following 17 years. Hardly a great return over that time.
That period of time from 1966-82 was defined by the tumultuous historic events, like the Vietnam war, but also low stock returns, high inflation and a Boom in Commodity prices.
This year we have seen many events that have seen calls for many to argue that commodity prices may be set for a 1970’s boom.
If you are looking for a new toastie maker, then the Chief executive of Breville has stated in his August update that supplier input and manufacturing costs have been rising, but the main problem is that shipping costs have been exploding.
Globally inflation readings having been going through the roof as well:
But it might not be that simple to assume that we are in for a rough ride for Stock market returns, if we are going to experience inflation and rising commodity prices.
For starters, the US Federal Reserve Chairman has stated that inflation is transitory (ie not permanent).
It could be that as the world has been forced to stay at home, while we wait until the populations are able to get vaccinated, this rush to go back out into the world and booking a holiday or a restaurant table, or even to get our reno’s finally finished off is causing inflation to temporarily pick up. When things get back to normal (if they get back to normal), then the price of goods will return to normal.
But another reason that we can’t quite rely on historical events to help guide us through the post pandemic period, is that it could be our own biases that hold us back.
Anchoring bias causes investors to look at the past events and assume that it will continue to remain so in the future. It’s the past information that Anchors our beliefs on what will be applicable from now on.
So if we were to have an Anchoring Bias, we could say that the US withdrawing from Vietnam, high commodity prices and inflation is likely to lead to a similar 1966 - 1982 malaise in the Dow Jones Industrial average because the US withdrew from Afghanistan and we have high commodity prices and inflation today.
This may turn out to be the case, however it is important to note that most Market participants are acutely aware that anchoring is imperfect and will attempt to make adjustments to reflect new information and analysis that is done as events unfold.
So even though reviewing historical events may definitely seem like it is heading towards a certain outcome, it’s equally important to stay nimble, keep an open mind and adjust accordingly when new information comes in. We are always happy to talk to you and adjust things if need be, so please feel free to get in touch with us.