When I began this column, my son Francis had only just celebrated his first birthday. Last Thursday, he celebrated his 14th. And in good style, may I add. If what I have to say this week sounds a bit weary, I can only plead that 24 hours straight in the company of five rambunctious, fiendishly ingenious teenagers have served to emphasize, with a terrible finality, the difference in physical and mental stamina that a 50-year gulf in age involves.
The market marked Francis’ first birthday with the 500-point break of October 1987, and strong men wept with brief foreboding, like children keening over bruised knees, until the Great Greenspan–mother figure to us all–soothed us with the proclamation “Let there be credit!” and there was. Within a month, everything was tickety-boo again, right as rain, and away we went. For my son’s 14th, a 300-point downspike in the Dow Jones Industrials Index seemed about right; but the next day–even as the ominous storm clouds of a five-boy “sleepover” gathered over Dumbo–the skies above Broad and Wall split open in a cerulean grin, most stocks recovered and then some, and the wizards and necromancers were back in business.
What happened last week was very reminiscent of the first market break I ever saw close up, that of May 1962. I had just completed my first year on Wall Street and was working in the Syndicate Department of Lehman Brothers, a fiefdom presided over by Andy Sage, with the concertmastering functions ably performed by Sandy Schwartz and Bob Shapiro, who would go on to deserved fame and fortune as (a) the nicest guy ever to work on Wall Street and (b) personal owner of the all-time “high tick” in Oil Recovery, a company whose business model involved injecting recalcitrant oil formations with soda water. Oil Recovery (and its investors) would have been better off if they’d simply bottled the fizz and sold it in groceries. I mention Oil Recovery simply as a service to Mr. Shaps and myself and our contemporaries: just to show you whelps out there, with your “B2B” and “B2C” business models, that the present day has no monopoly on investment idiocy. It goes with the mysterious territory, as unfathomable to its citizens as to foreign visitors, called Youth.
I was a complete novice then. I knew, as young people on ‘Change are wont to know, everything and nothing. But what was there to know? Our elders had matters well in hand; Judge Medina had seen to it that the major-bracket investment-banking houses were free to divide up the underwriting business by treaty (weep your hearts out, oh Sotheby’s, oh Christie’s) and the market was chugging ahead at a pleasant pace, like a freight train (” Train? ” I can hear younger readers asking) negotiating a mild grade. It was a once and future world with everything nicely in place and a cut of the cheese for all. By 5 p.m., the odd lot (” Odd lot? “) brokers from DeCoppet & Doremus and Carlisle & Jacquelin were well into their second Racquet Club martinis, and the put-and-call brokers at Thomas Haab and Botts had closed their ledgers for the day.
Then all hell broke loose. President Kennedy confronted the steel industry (” Steel industry? “) over a price increase, and in a single day the Dow cratered 32 points. The end had arrived, surely! That night, across the street in the bar at Oscar’s– where I had taken to repairing at day’s end to commune with the incomparable, eternally-to-be-missed-and-mourned “Liquor Jack” Young–the mood was apocalyptic, and Harry, the veteran bartender, wielded a heavy hand with the “Seven-and-Seven” (” Seven-and-Seven? “).
But, overnight, things calmed down. The White House stood firm–J.F.K., unlike the present and would-be occupants of the Oval Office, didn’t respond to the policy challenge by burying his nose up the bum of the Fortune 500 and caving–and yet investors realized that business was good nonetheless, and the market took off on a run that wouldn’t end for a dozen years. It was the most extraordinary performance ever, in its way, because it took place superimposed against a political and cultural background in which the sacred takings-for-granted of postwar American life were being upended one after the other; a decade that I began as a young buck, aged 24, who wore a hat to work as a matter of course, and ended as a 34-year-old Lehman Brothers partner wearing beads.
Still, that May ’62 break came as a shock, if not a wake-up call. ” Quo Vadimus? ” we asked ourselves in boarding-school Latin (” Latin? “) The question still applies. Where are we now? Where are we going?
It’s hard to avoid a sense that a fork in the road has been reached. The mindless hyper-bull-market that began in 1993 is surely over. But what about the longer up-trend that dates back to Aug. 13, 1982? This is the Big Kahuna–of which the post-’93 market move appears to have been a fragile sub-formation based on the inarguable premise that if you give a fool a whole bunch of money, it is likely to take longer than usual to part him from it.
My long-term prognosis remains pretty bullish. There is, said Adam Smith, “a deal of ruin in a nation,” and this nation has the greatest tolerance for pain and damage of any ever seen. Our sheer size–physical, demographic, monetary–is our greatest asset. We are to the global economy what Nebraska is to Division I Football: bigger and deeper, and open to walk-ons.
Our worst enemy is us. The geo-economic competition is either hobbled by nature (Japan–too small) or dumb thinking (Europe.) The sole mission for the euro was to establish the community currency as a viable, attractive alternative store of value to the dollar. The E.U. central bank, considered collectively and constituently, has notably failed at this; as David Malpass of Bear, Stearns pointed out in a shrewd Op-Ed piece in The Wall Street Journal , until the E.U. central banking system converts significant reserves into unhedged euro holdings, the common currency will remain a dog. As it should, if its own issuer doesn’t trust it. If that’s the way the Europeans want it, so be it. More money for us.
In this country, we need to stop worrying about what’s working for us, namely high employment. It’s better for all if people spend money they earn, not come by through the dole or larceny. Nothing drives an economy better than a widely employed, healthily materialistic (sic) populace that feels secure enough to consume a broad range of goods (and property, and services) made available by a free, opportunistic yet responsible market (which also may be an oxymoron.) To keep this ball rolling will take a certain political courage; for example, I have a hunch that the time may be strategically ripe for a corporate tax cut, but I doubt we’ll hear much about that .
What worries me more than ever is something I’ve been harping on for some time now. It’s this idiotic mistrust of (animus toward, hatred of, rejection of) the past, as if merely to mention “then” is automatically to rebuke “now.”
How we get out of problems begins with an understanding of how we got into them. It’s the point of an education. It’s certainly a main point of living, of laying up experience. It’s a point our culture–especially the media-driven part–seems hell-bent on annihilating.
Fair warning, then. Here’s something recently quoted, in an article in The Spectator by Geoffrey Wheatcroft, that says what I’m after better than I ever can. It’s from Burke’s 1774 oration on American taxation. Don’t miss the uncanny prefiguration, in Burke’s closing line, of Santayana’s famous dictum about history and its repetitions:
“[The Honorable Gentleman] asserts, that retrospect is not wise; and the proper, the only proper subject of enquiry is, ‘not how we got into this difficulty, but how we are to get out of it.’ In other words, we are … to consult our invention, and to reject our experience. The mode of deliberation he recommends is diametrically opposite to every rule of reason, and every principle of good sense established amongst mankind. For, that sense and that reason, I have always understood, absolutely to prescribe, whenever we are involved in difficulties from the measures we have pursued, that we should take a strict review of those measures, in order to correct our errors if they should be corrigible; or at least to avoid a dull uniformity in mischief, and the unpitied calamity of being repeatedly caught in the same snare.”
You won’t hear anything like that in these “debates.”