After 40+ Years, It’s Back

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Here is a run of recent headlines:

“Is the United States on the Verge of Stagflation?”…

“It’s Looking More and More Like Stagflation”…

“Stagflation Fears Come Back With a Vengeance”…

“The U.S. Economy May Be Barrelling Toward Stagflation, an Outcome Worse Than Recession”…

“JPMorgan’s Jamie Dimon Can’t Shake the Worry America Is Headed for a Repeat of 1970s-Style Stagflation.”

Examples multiply and multiply.

Stagflation. The word is as ugly as it sounds — a ghastly portmanteau of stagnation and inflation.

It conjures the grimmest days of the disco 1970s.

Stagnant economic growth, skyshooting prices, gasoline lines and bell-bottomed trousers were the era’s high menaces.

Dormant for decades, many considered stagflation permanently licked.

Yet many have acquired its grisly scent… and detected its approaching footfall.

2024 is not 1979 of course.

Unlike in the 1970s, official unemployment is low. Gasoline lines have no existence.

Popular fashions — through God’s mercy — take far different form.

Yet today we witness slackening economic growth and persistent inflation.

They do not yet near the stagflationary rampages of the 1970s. The trend is nonetheless… worrisome.

It appears the United States economy is down with a wasting disease. Consider:

The real gross domestic product — that is, the inflation-adjusted gross domestic product — expanded 38% between 1969 and 1980.

This span stretches across the deepest hells of the stagflationary epoch.

Yet between the years 2012 and 2023 the United States gross domestic product expanded a combined 27.6%.

That is, in real terms — in real terms — the stagflationary 1970s economy outran the 2012–2023 economy.

Shall we place real economic growth alongside stock market growth?

In real terms, the Dow Jones Industrial Average opened 1969 at roughly 6,500. It opened 1980 near 2,850.

The S&P 500 plunged from 740 to 360 across the same space.

For the stock market, the decade was well and truly lost.

Meantime, the Dow Jones Industrial Average returned 208.4% between 2012 and 2023.

The S&P 500 returned 179.7%.

That is, economy and stock market endured a divorce of sorts.

The 1969–1980 economy excelled the 2012–2023 economy by some 11 percentage points.

Yet the 2012–2023 stock market excelled the 1969–1980 stock market by miles and miles and miles.

Recall, both the Dow Jones Industrial Average and S&P 500 hemorrhaged over half their values 1969–1980.

What accounts for it?

In our estimation the answer is the Federal Reserve. It has assumed a parental and paternal responsibility for the stock market.

It had not yet taken aboard this responsibility in the 1970s.

Yet time equalizes as nothing else equalizes.

We suspect stock market and economy will meet once again on fair ground.

We hazard stock market will fall to the economic level… before economy rises to the stock market level.

When? We do not know.

We merely hope the gods are kind.

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