An unfortunate effect of our 24 hour financial data cycle, (I refuse to use the word news since most of it is totally irrelevant to our financial lives at present, much less five or ten years from now) is a complete loss of historical perspective. Bad news sells – plain and simple – so that is what we get. A recent quote by Liz Ann Sonders, Schwab Chief Investment Strategist, echoes this point: “I can’t remember the last time I got a question at a Q&A that had a positive spin on it.” To ease our worried minds let’s examine a little history from 1975 through 2015 just using years ending in the number five.
1975
Saigon falls and President Ford escapes two assassination attempts. Margaret Thatcher becomes the first woman leader of Britain’s Conservative Party. Global population is 4.1 billion and one-half live in extreme poverty by definition. U.S. population is 216 million and real U.S. GDP is $5.49 trillion. S&P 500 year-end close is $90.19, earnings and dividend are $7.71 and $3.73 respectively. Postage stamp costs 10 cents.
1985
Gorbachev comes to power in USSR and meets with President Reagan. Internet domain name system is created, Windows 1.0 is published and first successful human heart transplant occurs. New Coke is a colossal flop. Global population is 4.85 billion, U.S. population is 238 million and U.S. real GDP is $7.71 trillion. S&P year end close is 211.28, earnings and dividend are $15.68 and $8.20 respectively. Postage stamp costs 22 cents.
1995
Oklahoma City bombing is greatest act ever of domestic terrorism. Israeli Prime Minister Yitzhak Rabin is assassinated. Global population is 5.7 billion, U.S. population is 266 million and U.S real GDP is $10.28 trillion. S&P 500 year end close 615.93, earnings and dividends are $37.70 and $14.17 respectively. A postage stamp costs 32 cents.
2005
Hurricane Katrina devastates a land mass larger than Great Britain. July 7th London subway and bus system attacks become Great Britain’s 9/11 as 52 people lose their lives. Global population is 6.5 billion, U.S. population is 296 million and U.S. real GDP is $14.37 trillion. S&P 500 year end close 1248.29, earnings and dividends are $76.45 and $22.38 respectively. A postage stamp costs 37 cents.
2015 through December 7th
ISIS has Middle East in chaos as they carry out terrorists’ activities in Paris and elsewhere. Refugees pour into Europe. The world’s leading nations reach an accord over Iran’s nuclear development program. Global population is 7.29 billion, less than one in ten live in extreme poverty by definition. U.S. population is 322 million and real U.S. GDP is $16.39 trillion through September 30th. S&P 500 is 2070.34 at around 11:40 EST time December 7th. Earnings and dividends through November 23rd are $118 (full year estimate) and $43 (full year estimate). A postage stamp costs 49 cents.
Let’s summarize some developments from above.
- Global population is up nearly 80% and extreme poverty has dropped from one human in two to one in ten. The middle class consumer population is exploding.
- S. population is up by half yet we still have only population density of 85 people per square mile compared to almost 300 in France, 590 in Germany, 680 in UK, and 870 in Japan. We also have staggering natural resources and mineral rights vested in land owners.
- 100 years of hydrocarbon energy reserves at least.
- Real GDP has more than tripled with only a 50% population increase; real GDP per capita has soared.
- The S&P 500 rose more than twenty times on an earnings increase greater than 15 times and a dividend boost of almost 12 times.
This period is the greatest accretion of real wealth by the greatest number of people in the history of the world. Root cause, free markets, as more and more tyranny and socialism falls by the wayside especially in the developing world. In case you dare think we have reached our peak listen to Lowell Wood. His total lifetime patents exceed Edison’s and he is not slowing down. He scoffs at the idea that technological innovation is topping out. Something to consider.
Gary James, CFP®, AIF®, CPA
Financial Advisor