Professor Elam

The Road Ahead

The
best analogy for 2000-2016  is
likely the period from 1966 to 1982. No, I don’t mean a revival of the Beach
Boys but music,  mood, and markets
will undergo substantial change. Let’s take a look.

The
Dow Industrials peaked for the firs time at 1,000 back in 1965 amid a
technology boom. Then it was the beginning of modern computers (University
Computing Company) as well as the ‘space race.’ That peak was comparable to the
14,000 seen in 2000. The Dow then underwent the following overall multi-year
percentage swings;

1966
Down 25%, 1968 up 33%, 1969 Down 36%, 1972 Up 66%, 1975 Down 45%, 1976 Up 76%,
1977 Down 26%, 1980 Up 36%

But
wait, by the time the Dow hit that last Up 36%, it had only returned to where
it started, yep, at Dow 1,000. Welcome to Sideways markets with lots of
volatility but no new highs.

The
price of oil, then as now, is the emotional barometer of the Public. Higher
prices project economic expansion, 
lower prices decreased activity. 
We have patiently tracked those changes this past year for you, do not
expect things to change. Volatility is the new certainty.

The
years of 1973-1980 were perhaps the best ever for Andrews. The oil price
underwent a steady increase. Its final parabolic rise going double digit in
1979 brought a frantic end to the prosperity Andrews enjoyed while the rest of
the country went haywire.  
Andrews will not be so lucky this time.   Volatile prices and an ever changing anti-carbon
policy will only exacerbate the price swings. The Administration, for example,
just canceled permits to construct multiple coal fired power plants.

In
politics Richard Nixon was threatened with impeachment and resigned. In a
preview of things to come,  Bill
Clinton underwent an unsuccessful impeachment vote. Bush was tossed out of
office, presiding over the loss of the House, Senate, and White House. Already
political divisions are deep and wide with disapproval of Obama’s health Plan
over 50% amid raucous Town Hall Meetings. Expect more of this, not less in
years to come. The gerrymandering of districts giving politicians virtually
defeat proof majorities guarantee Pelosi, Frank, et al will stay in office. The
Republicans wandered in the wilderness 
from 1966-82 and will likewise do the same again. Nixon squandered his
majority by staying in Viet Nam. Will the same fate befall Obama? Thus far he
has ignored Afghanistan to embrace cap and trade and Health Care, both already
unpopular.  Bush made the same
mistake with a prolonged war in Iraq.   By the way, Quentin Tarantino will finally do a movie
version of 1984, the story of an All
Powerful Government, next year.

Musically
the Beach Boys popularity, cheerful songs of cars and surf, peaked in 1965-66.
The British Invasion of the Beatles and Stones sprung from American rockers
like Chuck Berry. But mood turned Magical Mystery Tour, now seen in Harry
Potter and Twilight.  The Beatles would turn introspective
meditating on Indian mountaintops and then break up as a group. That by the way
preceded the 45% drop in the Dow….A comparable event now would be the passing
of Michael Jackson.

Not
surprisingly a movie ‘celebrating’ the 40^th anniversary of Woodstock
is set for late summer release. 
That event brought a host of new groups onto the scene like Crosby
Stills and Nash, Ritchie Havens, and others. On a milder note, American Idol is perhaps the television
of Woodstock for another generation.

The
Cold War soldiered on in that era. Putin, a KGB trained spy, seems determined to
bring the Soviet Union back as a Union. 
This will be resisted by member states but hamstrung with too much debt
and bogged down in Afghanistan there will be little for the US  to do but sit and watch, I hope…..

The
rise of China and India may take another generation but is well underway. Just
as Britain took several decades to descend from its world stage, the same will
be true for the US.  Like Rome and
Britain, attempting to maintain far flung military outposts and an aggressive
welfare state at home will eventually cripple the currency. The  ability to project power across the
world is already diminished.  The
rise of Islam in Europe can only be checked by  a revolt of Islamic women, will that happen?

On
a positive note, like Prohibition in the Depression, the War on Drugs will
likely end in the next ten years. Mexico, amid a rising body count, has
legalized small amounts of marijuana. 
The US  Government has failed
to enforce behavior among drug users, incarcerating tens of thousands and  corrupting public officials along the
way.  Like FDR, this or the next
President will likely conclude legalization is more profitable and less
destructive.  It will no doubt require
more violent events on this side of the border, but it is going to happen.   The Public is already tired, is
Washington listening?

Knowing
what to expect can make the future much more manageable. Both the Depression
and the 197os saw technical advance. Wozniak ushered in the Apple in 1978.  That same sort of advance is happening
with Apple’s iPhone now.  The DC 3
made commercial passenger transport possible in the 1930s. So technology
marches on despite the economy.

 Americans voted for Change, they are
going to get just that.