The Presidential honeymoon is over. A bitter election fight looms. Business is dismayed at the Administration's regulatory initiatives and critical words for Corporate America. Sure, the President can and should take credit for containing the economic crisis. Yet his Administration has since been bad for business and the economy.
A prominent business publication sums up where Wall Street thinks the Administration has messed up:
• Vacillating and uncertain monetary policy
• Intrusion of government into every aspect of business
• Maintenance of a "motley crew of amateur advisors and consultants"
• Persecution of utilities and financial markets
• Hasty adoption of a "stupendous" social security program certain to promote insecurity
• Unceasing derogation of business
Believe it or not, that list wasn't directed at the Obama White House by The Wall Street Journal's editors in 2010. No, the target was President Franklin Roosevelt and the negative comments were compiled by the Magazine of Wall Street in 1935. (For eagle-eyed readers, the clue should have been the reference to the electric utility industry, which in the early decades of the 20th century amounted to a far larger proportion of U.S. industrial output.)
Republicans didn't want to work with Roosevelt as the election of 1936 impended. The stunning post-crash stock market rally of 1933, in which the Dow Jones industrial average climbed 54 percent, was long over. Many business leaders felt that Roosevelt's "advance toward socialism by indirection" had to be stopped. The government's deficit financing was unpopular.
"The more the government runs into debt, the less willing is private capital to enter normal long-term employment," complained the editors at the Magazine of Wall Street.
By now many parallels between 1935, the year of Elvis Presley's birth, and 2010 should be apparent. Here's the rub: Investors enjoyed a strong stock market rally in 1935, with the market up by nearly 48 percent. The Great Depression continued and unemployment remained high, but the outlook for both were improving.
"Unlike the editorial writers, investors appeared little concerned about mounting antagonism between government and business during 1935," writes Martin S. Fridson in It Was a Very Good Year: Extraordinary Moments in Stock Market History (my source of information about the 1935 market). "Instead, they took heart from strong indications of an economic rebound."
According to the Journal, sober citizens made up their minds that a normal and natural recovery would occur, "with the New Deal or against the New Deal or without the New Deal."
History doesn't repeat itself, but it can offer intriguing lessons. One message is that it pays for investors to listen less to the pessimistic posse dominating the corridors of power from Wall Street to Capitol Hill and more to the direction of company cash flow and earnings.
Another lesson is that it's risky to play it safe for too long in the markets. Bond yields in 1935 reached their lowest levels since the beginning of the century (another parallel with the age of Bill Gross) and investors eventually shifted their investment focus to stocks.
Will the same thing happen in 2010? The stock market is essentially flat for the year, with the Standard & Poor's 500-stock index showing a total return of only 1.8 percent. The timing of any rally is uncertain, of course. A pall hangs over the stock market, yet the list of positives is compelling.
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