by Gary Alexander
January 14, 2025
Today, I’ll cover Gold, U.S. stocks and China, as all have notable anniversaries in mid-January.
#1-Gold Fueled America’s Industrial Revolution & Conquered Inflation
150 years ago, on January 14, 1875, Congress passed the Specie Resumption Act, establishing the gold standard. Initially, it was a reaction to Lincoln’s Greenbacks and any other inflationary paper money, but in the end, the Act formed the foundation for a generation of deflation and an Industrial Revolution which sparked America’s greatest spurt of economic growth, starting a decade after the destructive Civil War.
The Act didn’t work any immediate magic. It didn’t take effect until January 1, 1879, as the severe Panic of 1873 lingered for years, followed by another dip in the mid-1890s, but it’s hard to find the Panics of either 1873 or 1894 in this long-term growth chart, below, which is constructed from 43 mining and manufacturing components as a proxy to represent U.S. GDP growth surging higher in the late 1800s.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Skipping forward a century, President Nixon removed gold/dollar backing in 1971 and gold began to soar:
- 50 years ago, January 1975, gold was legalized for Americans to own after being forbidden since 1933.
- 45 years ago, on January 18, 1980, gold peaked at $850 (up 24-fold in a decade) but it soon fell to $300.
- 40 years ago, on January 14, 1985, the British pound hit a record low of $1.11, down from $2.40 in 1980, as the dollar rapidly became king again in the Reagan years. Gold hit $285 in March 1985, in a flat range for 20 years, while the stock market soared, but gold has more than doubled stocks in this century.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
#2: U.S. Stock Market Highs and Lows Often Precede “Reversion to the Mean”
It always seems darkest before the dawn, as some of these mid-January market extremes portray:
110 years ago, on January 15, 1915, just after the New York stock market opened after a five-month hiatus due to the outbreak of World War I, the late J.P. Morgan’s firm signed an agreement with the British government to become the U.S. purchasing agent for British investors, since stock markets were still closed there. Britain’s first official purchase was $12 million worth of horses for the Great War.
The Dow Jones index closed at 52.32 on July 30, 1914, just before the Guns of August began firing, but it more than doubled to 110.15 by November 1916, after becoming the trading “oasis” to the warring world.
50 years ago, as reported here last week, on January 15, 1975, President Gerald Ford began his State of the Union Address: “I’ve got bad news, and I don’t expect any applause.” He continued: “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 low.” The Dow had just cratered, at 577.60 on December 6, 1974, but it would gain 75% to 1051.7 by September 1976, on the ascent of Jimmy Carter.
25 years ago, on Friday, January 14, 2000, the Dow set a then-record high of 11,723, a peak which held for seven years. We were in the midst of a merger mania and a dot-com bubble. (NASDAQ and the S&P 500 did not peak until March 2000.) On the same day the Dow peaked, the drug firm Glaxo-Wellcome offered Smith-Kline Beecham $75.7 billion in stock to merge. It took Glaxo-Smith-Kline (and another merger duo of AOL and Time Warner) a full year to complete their mergers. The day before the Dow’s peak, Bill Gates resigned as CEO at Microsoft, as the company was being investigated for anti-trust infractions. Steve Ballmer assumed the top spot, as Microsoft’s legal battle with the Justice Department escalated.
The Dow didn’t reach new high ground for seven years after its 2000 peak, but it is now up four-fold in 25 years. The lesson, as always, is that the market tends to revert to its mean rate of growth, about 8-10% per year over the last century – whether it falls from too-rapid growth, or rises after a steep decline.
#3: China Grows When It Embraces Capitalism – and Fails Otherwise
China turned Communist 75 years ago, in late 1949, but it was 75 years ago today, on January 14, 1950, that the U.S. recalled all consular officials from China the day after Mao’s thugs seized control of the building containing the offices of U.S. Consul General O. Edmund Clubb. The day after this invasion of the American consulate in Beijing, the U.S. State Department ordered the withdrawal of all 135 American diplomatic personnel remaining in the “People’s Republic,” including the closure of American offices in Shanghai, Nanking, Qingdao and Nanking. Less than six months later, on June 27, 1950, China supported North Korea’s invasion of South Korea in what became known as the Korean War, lasting until 1953.
Fifty years ago, in January 1975, China launched its Fourth National People’s Congress, after nearly a decade of the disastrous Cultural Revolution. A new, more liberal Constitution was approved, in which the popular Zhou Enlai was appointed Premier and the once-disgraced Deng Xiaoping became Vice-Premier, marking the start of Deng’s later rule over a mixed Communist/Capitalist economy 1978 into the 1990s.
Under Deng and his two successors, Jiang Zemin and Hu Juntao, China’s trade and growth prospered, but under “dictator for life” (since 2012), Xi Jinpeng, China’s growth and exports to the U.S. have stagnated, with exports to America about the same in Xi’s first year ($425 billion in 2012) as in his most recent year on record ($427 billion in 2023), partly due to a resurgence of Covid in China, and partly due to the fact that many U.S. firms have relocated their Chinese factories elsewhere due to product piracy, counterfeits and other unethical business dealings. Under Trump’s tariff threats, Chinese exports may fall further.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Speaking of Chinese exports, here’s a closing bonus trip down memory lane – China’s most disastrous export, Covid-19, starting five years ago this week, as we left for a Jazz Cruise on our 52nd anniversary:
Covid’s Debut: On January 15, 2020, the first U.S. case of Covid-19 entered America in the body of a 35-year-old man who lived in Snohomish County, Washington, near our home. He was returning from Wuhan, China, after visiting his family there. He entered the U.S. at Seattle-Tacoma airport on January 15, the same day my wife and I were at that airport bound for Florida (the day after our 52nd anniversary), for our annual Jazz Cruise. America’s Patient Zero lacked symptoms at the time, but he soon reported to an emergency care clinic with pneumonia symptoms on January 19 and was sent to an Everett hospital.
Now, for a weather report:
For some odd reason, the geniuses who drafted our 20th Amendment in 1933 – a particularly hot Dust Bowl year – mandated that future Presidents be sworn in on January 20th, the coldest time of year in DC.
Forty years ago, during Ronald Reagan’s second Inauguration, the wind chill factor in Washington DC reached -25 degrees Fahrenheit, so they moved the Inauguration ceremonies inside the Capitol Rotunda.
In related tomfoolery, the geniuses in the National Football League mandated that next week’s playoff games will be held on the frozen tundra of cities like Philadelphia, Kansas City and Buffalo. Brrrrr!
So, stay safe in any winter travels, everyone. The new threats of terror, fire and blizzards are out in full force, but before travelling, I’d like to tie our stories together – Gold, U.S. stocks and China – over the last 25 years (since 2000) and five years (since COVID). Who is winning so far in “China’s century”?
Gold wins the Gold Medal, the S&P 500 wins Silver, and China doesn’t even win Bronze (others would), but China gets extra credit for being the #1 gold producer and consumer, both in central bank buying (trading paper for gold) and consumer gold buying (after suffering real estate and stock market losses).
Navellier & Associates owns Microsoft Corporation (MSFT), in managed accounts. Navellier does not own GSK plc (GSK), or Time Warner (TWX). Gary Alexander does not own Microsoft Corporation (MSFT), Time Warner (TWX) or GSK plc (GSK), personally.
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