1983
I assume most of you are old enough to remember anticipating how the year 1984 would resemble the nightmare of Orwell’s great novel. He was 25 years off, but otherwise pretty accurate.
Now, some are wondering if we aren’t in fact reliving 1983—and then realizing (to our dismay) that we aren’t:
It’s beginning to look a bit like 1983: Stocks are soaring, unemployment is above 10% and the sci-fi TV miniseries “V” is back.
Stock investors can only hope for a repeat of that year, which continued the first leg of an 18-year bull market.
So far, stocks have behaved much as in the early 1980s. The Standard & Poor’s 500-stock index soared 69% between August 1982 and October 1983. Since March 9, it has jumped 58%. Both eras had deep recessions, and fast snapbacks usually follow such recessions.
Unfortunately, other similarities are scarce.
The market is not nearly as cheap now as it was then. When the 1980s bull market began, the S&P 500 was priced at less than 7 times trailing earnings. Even after a 69% rally, that multiple was just 10 times earnings.
The latest rally began with the market at a P/E of 13. The ratio has bloated to nearly 19, compared with its long-term average of 16.
In April 1983, when unemployment was last at 10.2%, it was on its way down. Now it looks like unemployment could rise for months.
And when the 1980s rally began, the Federal Reserve’s key policy interest rate was 11%, meaning it could simply slash rates to get things moving again. Today, the fed-funds target rate is nearly zero.
Baby boomers then in their prime earning and spending years have since lost trillions of dollars in net worth, with uncertain retirement and health benefits.
U.S. consumers in 1983 hadn’t yet embarked on a 20-year debt binge. Household debt was 62% of disposable income, a level that had endured since the 1960s.
That percentage now stands at 122%, even with debt growth stalled for the past two years.
The outlook for regulation and taxes is likely different now than in 1983. The market has proven it can endure higher taxes and more regulation, but they make Wall Street squirm.
“Inflation is going higher, unemployment is going higher, taxes are going higher, regulation is going higher and debt is going lower,” Dan Greenhaus, chief economic strategist at Miller Tabak, told clients on Friday. “1983 this is not.”
For better or worse, mostly better. Do we really need to hear Def Leppard’s Pyromania again—or see Terms of Endearment even once? Leg warmers and acid-washed jeans?
I’d rather be mired in an interminable Obama depression than ever see a mullet or a side pony tail ever again.