Perhaps if prosperity returns, we’ll appreciate it more

Filed under: Hazlehurst |

During the 16 years between 1952 and 1968, the Dow Jones Industrial Average quadrupled. Standing at 250 during 1952, the Dow increased by 50 percent in less than 20 months, moving above 380.33 on Nov. 23, 1954. It was a significant milestone, marking the first time in 25 years that the Dow had reached its 1929 high.
Between 1966, when the Dow made an intraday high of slightly more than 1,000, and 1983, the average either stagnated or drifted down, touching 581 during 1982, when the greatest bull market in history began.
During the 16 years between 1982 and 2000, the DJIA rose more than 11,000 points, closing at 11,722.96 on Jan. 14, a level that would not be exceeded until Oct. 3, 2006. A year afterward, the market had soared to 14,000 — and today, it’s hovering around 8,000.
During 1982, the then-conductor of the Colorado Springs symphony, Charles Ansbacher, introduced me to his brother Max, who was visiting the Springs.
Max, a young investment banker, had just written a book. Its title: “How to Profit from the Coming Bull Market.” I still have the copy he gave me — which, to my retroactive dismay, I never opened. Everybody knew the market would just go sideways forever.
Today’s conventional wisdom is somewhat different. Most investment managers, bankers, businesspeople and politicians are optimists at heart. They believe that the once-vibrant world economy will recover, that the stock market will rout the bear and once again soar to new highs, and that there will be money to be made in finding new investments, new markets, new products and new services.
That mindset is what animates Treasury Secretary Henry Paulson, as he lurches from one fruitless bailout scheme to another. It’s what drives the millionaire mendicants who run the domestic automobile industry, as they try to push aside the billionaire beggars who run the banking industry and plunge their own snouts into the federal trough.
It’s what brings hope to homebuilders, to commercial real estate owners, to state and local government officials, and to the president-elect himself. It’s the hope that intelligent policies, time and the powerful resilience of world capitalism will re-ignite the world economy and bring back the good times.
Let’s hope so.
We’d all love to return to the now-quaint problems of prosperity. It seems only yesterday that we complained about the excesses of development, worried about potentially view-blocking downtown skyscrapers and couldn’t find a parking place.
Here’s the bad news: the great boom of 1982 to 2000, and the mini-boom that ended a year ago, might have been anomalies, bubbles of illusory prosperity that will never return. Institutions and individuals alike came to expect outsized returns upon investments of all kinds, and planned accordingly.
Most of us saw our houses as constantly appreciating investments, and refinanced whenever we wanted a fistful of tax-free dollars. Institutional money managers, whether they ran hedge funds, college endowment portfolios or public pension funds, were expected to rack up double-digit investment returns indefinitely. Derivative contracts eliminated that pesky thing the old fogeys used to call “risk,” and the booming economy did the rest.
As Warren Buffett pointed out last year, such expectations were not merely aggressive, but delusional.
“During the 20th century, the Dow advanced 5.3 percent when compounded annually,” he wrote. “For investors to merely match that 5.3 percent market-value gain, the Dow would need to close at about 2,000,000 on Dec. 31, 2099 … I should mention that people who expect to earn 10 percent annually from equities during this century — envisioning that 2 percent of that will come from dividends and 8 percent from price appreciation — are implicitly forecasting a level of about 24,000,000 on the Dow by 2100. If your adviser talks to you about double digit returns from equities, explain this math to him — not that it will faze him. Many (investment experts) are apparently direct descendants of the queen in Alice in Wonderland, who said: ‘Why, sometimes I’ve believed as many as six impossible things before breakfast.’”
In other words, the party’s over.
But here’s the good news: Colorado Springs will almost certainly be an island of prosperity in the slough of despond (if there are islands in sloughs).
President-elect Barack Obama might not be able to make good on most of his expansive campaign promises, but he’s sure to follow through on at least one of them — increasing the size of the Army.
It’s a proposal that has wide bipartisan support, because of its obvious merit. The Army is overextended and undermanned — and a recessionary economy means that well-qualified young men and women will flood the recruiting offices.
Jobs are provided, national security is enhanced — and Fort Carson’s future is assured, regardless of Pinon Canyon.
So expect our local economy to get back on track, even as the nation flounders. And who knows — we might even see an irrationally exuberant developer pull a 20-story building out of one of those downtown parking lots.
Go ahead! Take my parking place! Block my view! Please …!
John Hazlehurst can be reached at or 227-5861.