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1975


mpauls
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Feel free to add historic similarities to this:

 

 

 

1975 Year in Review

 

Financial Crisis

Unknown Speakers (singing): "New York, New York! A helluva town! The Bronx is up, but the Battery's down! The people ride in a hole in the ground! New York, New York! It's a helluva town! Hey, everybody ï؟½ "

 

Ed Karrens: These are the voices of thousands of New Yorkers who rallied at Time Square to give each other support and to show the country they weren't down yet.

 

Well, the fact is, they were down, but not out. It was a money problem that hit the City in the midsection. It had none: no money to pay bills, no money to pay salaries. The City was on the brink of default, the failure to meet financial obligations. However, more than once the City was saved at the last minute. New York Mayor Abe Beam pleaded desperately to Washington and Albany for help. New York Governor Hugh Carey came up with an austerity program and created Big Mac, an agency that sells bonds for city revenue and offered over $2 billion in aid that would get the City on the track until December.

 

But in Washington, President Ford said no to any federal help, at least not until New York showed it would revamp its fiscal system and keep its financial affairs under tight control.

 

President Gerald Ford: "What I cannot understand, and what nobody should condone, is the blatant attempt in some quarters to frighten the American people and their Representatives in Congress into panicky support of patently bad policy. The people of this country will not be stampeded. They will not panic when a few desperate New York City officials and bankers try to scare New York's mortgage payments out of them. We've heard enough scare talk. Let's face one simple face. Most other cities in America have faced these very same challenges, and they are still financially healthy today. They have not been luckier than New York; they simply have been better managed."

 

Ed Karrens: While the President got much support around the country for his stand, in the Big Apple sentiments were strong and in opposition. Mayor Abe Beam ...

 

Mayor Abe Beam: "Today's speech by President Ford is nothing less than a declaration of default by the White House, a default of Presidential leadership in the face of the nation's most pressing domestic crisis. The President, in opting to do nothing to prevent the City of New York from facing the consequences of being unable to meet its debt obligations, has created a climate of crisis and confusion, which if unchanged will lead directly to a default."

 

Ed Karrens: But changes were made. Among other things, a new tax plan promises to bring in about $200 million. Finally Ford, convinced New York was heading in the right direction, made this announcement on Thanksgiving eve ï؟½

 

President Gerald Ford: "As we count our Thanksgiving blessings, we recall that Americans have always believed in helping those who help themselves. New York has finally taken the tough decision it had to take to help itself. In making the required sacrifices, the people of New York have earned the encouragement of the rest of the country."

 

Ed Karrens: With the passage of the bill by the House and the Senate, New York City got through the year, even though at times it was a real cliffhanger. New York may be a helluva town, but the more than 35,000 New Yorkers who lost their city jobs since the financial crisis began may be having second thoughts about that ï؟½

 

President Gerald Ford: "I must say to you that the state of the union is not good. Millions of Americans are out of work; recession and inflation are eroding the money of millions more. Prices are too high, and sales are too slow."

 

Ed Karrens: President Ford made this gloomy announcement during his State of the Union Address in January. It was clear that the United States' economy in 1975 began where '74 left off: on a downhill slide. The gloom continued during most of the year. Unemployment reached as high as 9.2% in May. The country had its largest peacetime deficit ever, and Ford said it would be worse in coming years.

 

To instill some new money into the system, Congress passed an anti-recession tax-cut bill in March. The bill gave individual taxpayers a minimum rebate of $100 in 1974 taxes. By the end of the year, Ford was requesting the same kind of rebate, in addition to another tax cut for '76 ï؟½

 

President Gerald Ford: "Tonight, I propose permanent tax reductions totaling $28 billion, the biggest single tax cut in our history. Earlier this year, the Congress passed and I signed a temporary tax cut covering calendar year 1975. That temporary law will expire at the end of this year, and unless we act now, your taxes will go up again in January. I am proposing that we sweep away that temporary law and replace it, effective January 1, with a permanent federal income-tax cut that will be both larger and more equitable."

 

Ed Karrens: Auto dealers got into the anti-recession game by offering $200 to $500 rebates to new car buyers, and by the end of the year auto sales were looking better.

 

In the fall, observers said the United States was recovering from the worst recession since after World War II. The recovery, however, was slower than expected, and at year's end inflation and unemployment were still at high levels.

 

 

Read more: http://www.upi.com/Audio/Year_in_Review/Events-of-1975/Financial-Crisis/12305821478075-6/#ixzz1OqCj0xJj

 

 

 

Energy Crisis

If there was one other problem besides the economy which took much of the President's time in '75, it had to be the energy problem. Consumers were hit with rising prices of electricity, gas and fuel. Oil-producing nations were responsible for at least some of the increases, because so much of the oil the U.S. gets from abroad is used for energy purposes. Therefore, talks centered around having the United States work towards a day when it would not have to rely on any other nation for its energy needs; but the plan as stated by President Ford would cost $100 billion

 

President Gerald Ford: "Frankly, we cannot wait any longer for the Congress to act on my Comprehensive Energy Program. Long-range security, jobs and energy are inseparable. The time has come for action on energy independence. Accordingly, I will ask very shortly the Congress to erase all doubt about the capacity of America to respond. I will propose an entirely new $100 billion Government corporation to work with private enterprise and labor to gain energy independence for the United States in ten years or less."

 

"(Applause.)"

 

Ed Karrens: An independent energy plan was fine, said most politicians; but some of them said you can't have an energy plan without a conservation plan to go with it. So if anything, 1975 was a year where there was further searching for energy policy. The fuel and energy crisis of the '70s has made the United States aware that solutions must be found and alternative systems must be investigated. In 1975, some progress toward that end may have started.

 

Coming up next: the Middle East closer to peace; Lebanon in civil war; Franco of Spain, a dictator, dead.

 

 

Read more: http://www.upi.com/Audio/Year_in_Review/Events-of-1975/Energy-Crisis/12305821478075-7/#ixzz1OqCWup2y

 

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I agree about the general timeframe but think it is closer to 1978 - 79.  With the gold run-up and the declining dollar.  It is also interesting about the political parallels - the Carter and Obama campaigns were about hope, change and blue skies and both presidents could not live up to these expectations.  They had foreign political successes but economic issues that neither could deal with effectively.  In fairness, however, I think both were dealt pretty bad hands but IMO there play made the hands worse.  The best historical context of this time in the market can be found in Neff's book (stock market) and American Experience - Presidents Carter video.

 

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I think the analogy is the stress on the economy and companies is where the analogy comes in.  In the 19070s it was from inflation now it is from too much debt.  If you look at what Neff invested in the 1970s (under another stressful scenario), you can see what did well versus not and the booms and cheap stocks of the time.  As Sanjeev said history does not repeat but it does rhyme.  Looking at the past has helped me to see todays world in better light.

 

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Coming up next: the Middle East closer to peace; Lebanon in civil war; Franco of Spain, a dictator, dead.

 

And the  Generalissimo Francisco Franco is still dead

http://en.wikipedia.org/wiki/General%C3%ADssimo_Francisco_Franco_is_still_dead

http://www.youtube.com/watch?v=HX_-faiNTVU&feature=related

 

Let me add, military coups all across Latin America and Vietnam ... and how could I forget Watergate.

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Parsad

 

That's a great quote you came up with. I often find that wittyness like this is an indicator of intelligence.

 

Not my quote.  Mark Twain's quote.  Perhaps, not as intelligent as you thought, and certainly not as witty as Mark Twain!  ;D  Cheers!

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And if there is anything to learn from the economic situation in the late 70s, we didn't survive. So it is blatantly obvious that there was, and presently is, no need to go long any stock, of any kind... ;)

How do you mean?

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Parsad

 

That's a great quote you came up with. I often find that wittyness like this is an indicator of intelligence.

 

Not my quote.  Mark Twain's quote.  Perhaps, not as intelligent as you thought, and certainly not as witty as Mark Twain!   ;D  Cheers!

 

But, it is a mark of intelligence that when you steal, you steal smart!  Go watch a Steven Spielberg movie!  :)

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I think the analogy is the stress on the economy and companies is where the analogy comes in.  In the 19070s it was from inflation now it is from too much debt.  If you look at what Neff invested in the 1970s (under another stressful scenario), you can see what did well versus not and the booms and cheap stocks of the time.  As Sanjeev said history does not repeat but it does rhyme.  Looking at the past has helped me to see todays world in better light.

 

Packer

 

Do you remember what the interest rate environment was like and what the Fed did before the Volcker squeeze? Also, were stocks already cheap in the late 1970s or did they become cheap only in reaction to double digit interest rates? I am wondering whether we will get another opportunity to see single digit market PEs.

 

Thanks.

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I think the later is the case becuase high interest rates reduce the P/Es and prices will go down unless you can raise prices faster than P/Es are falling.  Before the Volker squeeze, there were high nomial rates but low or negative real rates.  Volker provided high real rates which drove money from stocks to FI investments.  I think the only way will see single digit PEs for the market (there are numerous single digit PE stocks today in certain sectors - MSFT, CSCO, DELL, HPQ, LXK, WDC) is if inflation increases.  I personally do not think this will happen due to the large amout of debt that needs to be worked through.

 

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