Finance blog


Tempus Part Two

October 06, 2021

Perhaps the worst pandemic in human history was the infamous Black Death—the Bubonic Plague—that ravaged the whole world in the Fourteenth Century. Travel, record-keeping, and accurate diagnoses were not fully reliable in those days, but some estimates have the death rate in Europe between 30% and 60%. I guess I had learned about this event through the years…school, History Channel, that sort of thing.

What I hadn't really learned much about was a far more recent—and surprisingly comparable to COVID-19—pandemic in 1919, often called the Spanish Flu. Between early 1918 and the fall of 1919, something like 675,000 Americans died of influenza, and perhaps 20-40 million died worldwide. This scourge killed more people than the recently ended World War.

Sadly, and amazingly, I never really knew much about this pandemic. I mean, I had heard the term "Spanish Flu" before, but I never really thought it was that serious. However, once I went down the rabbit hole of looking into some of the consequences, I found the parallels to today to be quite remarkable. One thing we do know for sure is that the Spanish Flu was a global disaster. It was a human disaster, a financial disaster, it destroyed governments, and for many it changed life as they had known it before. Keep in mind, the population of the United States was quite a bit smaller a hundred years ago (approximately 105 million people) and the record keeping was likely less accurate. Deaths were probably significantly higher than the records show. So, somewhere around 0.64% to 1.00% of all Americans apparently died because of the Spanish Flu. According to Worldometer, there have been approximately 722,268 deaths in the U.S. from COVID-19 out of a total population of around 330 million people, or approximately 0.24%.

Why do I bring up such a grim history? First, let us consider the phases I discussed last week: panic, adaption and masking, testing and vaccines, political wrangling, and finally, treatment. I tried to make the argument that we have entered the treatment phase and promised to try to tie it into the capital markets. Let's see if I can pull that off!

The Spanish Flu caused a panic as younger people, mostly those between 20-40 years of age, were dying at an incredibly alarming rate. So, Phase One: Panic.

I hadn't known that masks had ever been a thing in this country. Upon reflection, it makes sense though, because no one I know was alive in 1919. The oldest people in the country would have been mere babes at the time. If you look up images from the time frame, however, you will see images of people wearing masks. So, Phase Two 2: Masking and Adaptation.

Unfortunately, for that generation, Phase Three: Testing and Vaccines, did not occur. People got sick, went to hospitals where they were often turned away due to lack of capacity, and then they either got better or they passed away.

They did, however, nonetheless enter my Phase Four: Political Wrangling.

While researching for this post, I found many interesting articles. There were lots of fights, rallies, and even the occasional shooting related to local mask mandates and other types of lockdowns. Reading some of these was almost like watching the news of today. People were angry and scared. Businesses were dramatically affected. It appears to me through my readings that the wrangling was much more of a local issue than the national one it is today. Obviously, news did not travel as fast as it does today—no Twitter, no internet—and the reach of the Federal government into most individual's lives was far shorter. As they say, politics is local, and that was definitely true in the late 1910s!

I also don't think they ever really experienced a phase of treatment, like we are entering now. The disease just burned itself out. As I noted earlier, the record keeping was not as good a century back as it is today, but there are reasonable general records, and I want to put two graphs together side by side. These graphs show the waves of both the 1919 pandemic and the current one. We are still experiencing the 3rd wave of COVID today, but if you squint as these two…pretty similar.

Please note that I am not a scientist, nor am I a credible pandemic expert, but to the layman's eye….

Now I promised to get to the financial implications

I am going to reach and suggest that the similarity of the above wave graphs could suggest some similarities in the aftermaths of these episodes, financially. These are only observations, do not rely on them too much!

The graph below, shows us the stock market from 1915 to 1935. The Dow-Jones kind of bounced around 100 during the entire pandemic. After it's resolution, the market skyrocketed, and people got to really enjoy the famous Roaring Twenties. I cannot say that the end of the pandemic was 100% responsible for this incredible roaring market, but I believe most historians would say it was at last partially responsible. Unfortunately, due to massive leverage, virtually zero risk management, and bad decision making, the Roaring Twenties ultimately led to the Great Depression, which you can also see in this graph. The stock market fell from around 350 to 42 over the course of three years, leading to incredible wealth destruction.

There are other potentially disturbing parallels. During the 1910s the average inflation rate was somewhere in the 3% range. Due to a massive increase in the money supply, by the end of the 1920s it was around 15.5%. The country was also experiencing all kinds of new technology. The common use of electricity, the automobile, radio, production lines in factories, commercial flight! Lots of cool stuff.

What might this mean for us today? I have no real idea. I do see inflation coming on strong. Oil prices are higher than they have been in years. Our money supply is expanding at an astounding pace. The velocity of money is at or near a 60-year low. People are not working, many comfortably, because they can get paid for staying at home. Even with all the technological advances we have seen, we still can't know the future. I really think managing a portfolio of assets must become ever more dynamic. I've beaten this drum 1,000 times (I'd say 1,000,000, but I don't want to exaggerate), but we must look at our investments over time and across multiple scenarios. Relying on single statistic parameters is more dangerous than ever.

Even with all the technological advances we have seen, we still can't know the future. I really think managing a portfolio of assets must become ever more dynamic. I've beaten this drum 1,000 times (I'd say 1,000,000, but I don't want to exaggerate), but we must look at our investments over time and across multiple scenarios. Relying on single statistic parameters is more dangerous than ever.

I also do see tons of cool new technology: electric cars, incredible computer stuff, documents that can be executed electronically. Communications today have been transformed from even two years ago. Many people are perfectly content to do their work from home, via Zoom and Slack. The world has changed, just as it did over a hundred years ago.

As Mark Twain famously said: "History doesn't repeat itself, but it often rhymes."

Mark Twain died in 1910…just sayin'.

Final, final thought: Halloween is around the corner…any good ideas on treats I should give out? Or on treats I should keep for myself?

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The information, analysis, guidance and opinions expressed herein are for general and educational purposes only and are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation. Information obtained from third party resources are believed to be reliable but not guaranteed. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.