It was late October and dark in the early morning as I entered Boston’s newest and highest skyscraper, the Bank of Boston.  I walked through the lobby to the far end of the elevator bank and pressed the button to the 37^th floor, the penthouse.  There were two massively opposing 12 foot high oak doors at the office entrance.  Above the doors, in gold leaf, it read Clark Dodge & Co, at the time a very prestigious firm.  But one that was about to go out of business, because it was 1973.

Opening the large brass lock I stepped onto a stone slate floor covered with oriental rugs.  Above was a large chandelier some 20 feet high.  Walking past dark paneled walls, I stared at my desk in the distance.  In the top drawer was an unopened pay envelope.  The prior day’s dread was coming back.  I psychologically had been unable to open it.  

The rising sun coming out of Boston harbor forced me to realize that this was a new day.  Sitting at the desk, I opened the envelope.  The check was for $13 and change.  It was my entire September commission check!   I decided to save it as a reminder of how quickly everything can change.      

Many stocks which had been over $100 in 1972 were selling for $50 by the end of 1973.  Little could anyone imagine that by the end of 1974 some stocks would be $5!  Such was the speed and viciousness of a bear market.  Markets, then as now, can move at speeds which we cannot get our minds around.     

The 1960s were the “Go Go” years in the stock market.  The federal government’s policy of “Guns and Butter” (Viet Nam and The Great Society), plus union demands, had created accelerating inflation.  By 1972 just 50 stocks were rising.  They were called the “nifty fifty; the “vestal virgins;” “the one decision stocks.”  It really didn’t matter what one paid for them ...  at least according to the acolytes.  They would always earn their way higher.  The overriding “big picture” from 1947 on had been equity.  However, strong inflation and a weakening economy eventually crushed the stock market in 1973-1974.  

In 1982 interest rates peaked and there was an explosion in private and public debt which was to last over 35 years. In the process, debt became many times the size of the stock market.  This led to almost all financial institutions being managed by fixed income “Masters of the Universe” … bond traders.  They created a pyramid of debt structures, real and synthetic, which finally crashed in 2008-2009.

Unlike 1973-1974, the 2008-2009 stock market experience had nothing to do the stock market.  Stocks were sold because they were the only asset class with a liquid and visible (honest) market.  Debt contraction is a deflationary experience.   Stocks in the future will be the only asset class of choice. 

FRANCIS PATRICK BOLAND

10-16-11