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Less than two days after his inauguration, FDR issued Proclamation 2039, which halted all banking activity for a week. This so-called bank holiday was imposed to stop a series of bank runs that were destroying people’s livelihoods and deepening the economic crisis.
Roosevelt then went on the radio and “in the middle of everything, he gave the country a really basic primer on how banks and money work,” wrote Jacob Goldstein in “Money.” He explained that only a small portion of your savings was actually in the bank while the rest was used to dish out loans to businesses that grow the economy.
The banking holiday and FDR’s speech worked: After the holiday, people lined up to put their money back into the banks. Confidence was restored, and stocks began to recover, although it would be years before equities and businesses fully recovered from the Great Depression.
While the Covid-19 recession isn’t nearly as dire as the situation in 1933, Biden’s job will also be to restore confidence. He has promised to accelerate vaccine distributions, as well as provide more financial assistance, including $2,000 in checks, to help see the country through to a post-Covid world. If he’s successful, investor appetite will likely follow.
In FDR’s inaugural address he delivered the most famous line of his presidency: “
The lesson extends to your finances as well. Panicking in the face of economic turmoil only makes matters worse.
President Ford’s First 100 Days
Gerald Ford was inaugurated on Aug. 9, 1974, immediately following the resignation of his predecessor, Richard Nixon. Runaway inflation was crushing the economy after the first OPEC oil embargo.
Back in August, Federal Reserve Chair Jerome Powell made an important speech. He said that the Fed would countenance inflation above its target level of 2% for a moderate period of time before raising interest rates. Ever since the Great Recession, prices and wages had mostly grown slower than Fed officials wanted and this move was needed to abate that trend.
If a Fed official from 1974 could have listened in on Powell’s speech, they would be flabbergasted. That year, annual inflation, as measured by the Consumer Price Index (CPI), was a shockingly high 11%.
President Ford assumed office after Nixon resigned in disgrace. But he also ascended to the White House in the wake of the first OPEC oil embargo, when the price of crude quadrupled in less than a year, shocking the economy and causing the massive spike in inflation.
The situation was so dire that in a speech before Congress in his second month in office, Ford called on Americans to “whip inflation now” by enlisting as an “inflation fighter and energy saver.” Those who signed up would receive a “WIN” button. Inflation fighters would declare to increase personal savings and spend less. The public relations campaign was dismissed as a stunt at the time and few made the pledge.
Ford’s brief presidency was blighted by high inflation and weak employment, contributing to his eventual defeat. But, as Powell’s speech suggests, today the problem is that inflation is simply too low. The White House and Congress can stoke demand by spending more money as the economy recovers.
Many who came of age during the ’70s may be horrified by the idea of asking for more inflation. Why poke the bear? But it’s important to understand that persistently low inflation has its downsides, too.
Savers earn next-to-no interest on their cash since the Fed holds down rates to stimulate growth. Investors must accept more risk to earn the yields necessary to fund their retirement. Debtholders, meanwhile, effectively owe more since their principal retains more value over time.
The shift from the red-hot inflation of the Ford era to the weak inflation of today demonstrates just how important it is you stay agile in your financial planning.
President Reagan’s First 100 Days
Ronald Regan was inaugurated on Jan. 20, 1981. In 1979-80, a second oil crisis had sent crude prices through the roof, thanks to the Iranian Revolution and the Iran-Iraq War.
Just six years after Ford assumed the presidency in the midst of a crippling energy crisis, Reagan was inaugurated facing yet another energy crisis.
The Iranian Revolution of 1979 threw into chaos one the Middle East’s largest countries and biggest oil producers—and in 1980, Iran’s neighbor, Iraq, responded by invading the country. Not only did Iran’s oil output decline, reducing supply, but nervous buyers started to panic buy crude. Low supply and high demand combined to raise prices dramatically.
The energy crisis of 1979-80, combined with outdated U.S. automobile fuel efficiency regulations, forced drivers to wait in endless lines just to fill up their tanks.
In response, non-OPEC countries, including Great Britain, Norway and the United States, began producing more oil. President Reagan set about updating the federal government’s fuel efficiency regulations and investors began to make the oil market trading more sophisticated.
The new Biden administration faces a different environment. Oil prices have been trending lower since the summer of 2014, thanks in large part to a glut of shale oil production by U.S. firms, which has helped make the U.S. one of the world’s top oil producers.
The future demand for oil will be interesting to watch as car companies, from General Motors to Tesla, shift to all-electric models. and governments across the world implement plans to start phasing out carbon-emitting fuels. Biden, for instance, has vowed to return the U.S. to the Paris climate agreement.
One company that has had trouble adapting is ExxonMobil. The Irving, Texas-based behemoth was trending downward heading into 2020 before falling off a cliff after the coronavirus struck. Exxon, which flirted with a market capitalization of $500 billion just 13 years ago, is now worth less than $200 billion—that’s one-quarter of Tesla’s market cap.
The lesson for investors is pretty clear: Nothing lasts forever. Stock market darlings become ugly ducklings when the world changes, which is why you need a long-term investing horizon composed of low-cost diversified exchange traded funds (ETFs) and index funds.
President Bush’s First 100 Days
George W. Bush took office on January 20, 2001, just as the dot-com bubble in tech stocks was finally popping. The tech bubble foreshadowed the much bigger housing crisis at the end of his presidency, eight years later.
Remember Flooz? What about Digiscents? Surely you recall TheGlobe.com, whose co-founder Stephan Paternot was once filmed by CNN in a New York night club saying, “Got the girl, got the money. Now I’m ready to live a disgusting, frivolous life”?
All three, along with hundreds others, were Internet companies that gained billions in investment capital and a raft of media attention in the late 1990s and the first year of the new millennium—only to flame out and take the rest of the economy down with them. The dot-com bubble was so vicious that the Nasdaq, the preferred index for tech stocks, took almost 15 years to recover (longer if you account for inflation).
The loss “was as if a year’s output of the economies of Germany, France, England, Italy, Spain, the Netherlands and Russia had completely disappeared,” writes economist Burton Malkiel in A Random Walk Down Wall Street.
The bursting of the internet bubble helped usher in an eight-month recession in 2001, after President George W. Bush was inaugurated. The recession was only deepened by the terrorist attacks of Sept. 11. Congress spent much of Bush’s first 100 days debating the tax cut bill he ran on, and it ultimately passed the measure in June 2001, which included $600 tax rebate checks.
Market observers have been on the lookout for stock market bubbles ever since, and that remains true as Biden assumes office. Tesla, for instance, has rarely turned a profit and is suddenly the most valuable car company in the world. Likewise, Palantir and Airbnb enjoyed huge demand for their stocks when they went public despite losing money for most of their existence.
The first 100 days of the Biden administration won’t likely see another major stock market crash. After all, the first bear market in a decade just ended, the Federal Reserve will keep money cheap for years and the government passed $3.5 trillion in stimulus over the past 10 months. All that money has to go somewhere.
Nevertheless a healthy amount of skepticism is appropriate. Popular apps that gamify stock trading, such as Robinhood, drew bigger audiences in 2020, helping to give the nascent bull market extra oomph. Rambunctious swipe-buying can be enticing, especially in a growing market, but you should be cautious. It’s exceedingly difficult to consistently beat the market, and downturns can last longer than you can stomach.
President Obama’s First 100 Days
Barack Obama took the oath of office on January 20, 2009, just four months after the collapse of Lehman Brothers, the nadir of the Great Recession.
Bush’s presidency began and ended with a stock market crash, which together resulted in a lost decade for investors. President Obama, elected in the aftermath of the housing crash and the meltdown of the financial system, came to office as hundreds of thousands were losing their jobs each month and homes were being foreclosed en masse. The job losses would mount through his first year in office.
Obama’s relief efforts proved mixed. While he was able to help pass a huge stimulus package, it was much smaller than what many economists had called for and pales in comparison to the CARES Act stimulus package passed at the outset of the Covid-19 crisis. Moreover, programs to help homeowners stay in their homes did precious little. Still, the economy slowly rebounded during Obama’s two terms in office, with the unemployment rate ultimately reaching 4.7% in January 2017—well off the peak around 10% in the first year of his presidency.
Biden is in a much better situation. The labor market has already recovered from the worst of the pandemic-imposed lockdowns and is poised to return to pre-crisis levels by 2023, per the Fed. It took the economy more than a decade to recover from the housing crash.
And thanks to both relief packages passed last year, some households ended up in a better financial position than they were in before the pandemic struck thanks to thousands in direct payments and enhanced unemployment insurance.
While we’re not out of the woods yet, investors should note the respective rates of recovery from both crises. The Great Recession was caused by the financial system nearly melting down while the current recession is much closer to a natural disaster. The former is much harder to bounce back from than the latter, which is why the S&P 500 is presently at all-time highs while Covid-19 still rages.
President Trump’s First 100 Days
Donald Trump was inaugurated on January 20, 2017. He came into office after a long period of economic expansion, during which investors started to inflate the first major Bitcoin bubble.
Here’s a Reuters headline from about three weeks before President Donald Trump took office: “Bitcoin jumps above $1,000 for first time in three years.” Simpler times, indeed.
The leading cryptocurrency briefly topped $40,000 this month, before trading back to around $30,000 as institutional investors and old economy financial behemoths started to get the bitcoin religion after years of muted skepticism. A J.P. Morgan analyst wrote that the cryptocurrency could reach nearly $150,000 over the long-term as it slowly replaces gold as a safe haven for nervy investors. Who knows where it’ll go after Biden’s first term?
Trump is the only president on this list who didn’t come into office in the middle of a crisis. He inherited one of the longest business expansions in U.S. history, and the economy performed admirably during much of his tenure, especially for low-wage workers, who finally began to see their income increase for the first time after the Great Recession.
Nevertheless, Bitcoin’s dramatic rise during his tenure represents one of the most significant financial developments in recent history, and it will be fascinating to watch how it evolves.
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One caveat: be extraordinarily circumspect when it comes to cryptocurrency. Yes, Bitcoin has risen dramatically in recent years—but it’s also experienced huge sell-offs, too, like the one we’re seeing now, as of Jan. 13, 2021.