December 19-25, 1921
This week, mounting evidence points to the end of the current recession. US Steel and Anaconda Copper expect revenue growth next year.
Quick Stats:
DJIA: 80.46 (Today: 35,365)
Shiller PE Ratio: 6.1 (Today: 38.8)
Federal Reserve Bank of NY Discount Rate: 4.5% (Today: 0.25%)
GBPUSD: $4.18 (Today: $1.32)
Price of The Wall Street Journal: $0.07 (Today: $4.00)
Market-Moving Themes:
Sentiment slowly turning positive as business activity improves and financial conditions ease (equity, debt markets)
Commodity prices normalizing after working through post-war adjustments (commodity markets)
The US dollar has emerged from World War I as a reserve currency, alongside the pound sterling (currency markets)
Executive Summary:
Here we go again. Stocks settle in for the holiday slumber and trade sideways this week, barely fluctuating. The FT gets into the Yuletide spirit by finally acknowledging economic activity doesn’t feel as bad as they’ve suggested. Whilst not a full mea culpa, Thursday’s “Round the Market” column has one final thought before Christmas: perhaps they were too negative last fall.
Historical Fact: If it bleeds, it leads. Bearish proclamations draw far more ratings than optimistic outlooks. Bill Ackman famously went on CNBC in March of 2020 to proclaim “Hell is coming,” meanwhile he was buying hand over fist on the heels of breathtaking government stimulus.
The WSJ reviews the past. Five years ago, on December 21, 1916, equity prices declined sharply on rumors of peace, closing down 7% in aggregate. Volume totaled over 3m shares on the NYSE for the third time in the exchange’s history. The previous volume records were on April 30, 1901 and May 9, 1901 during the Panic of 1901.
In parallel releases, the steel and copper industries look to 1922 for a return to revenue growth. US Steel is running factories at 45% of capacity, but strong demand for products such as the Ford Model T has worked through excess steel inventory. The company describes crushing operating conditions from the worst deflation ever experienced.
Historical Fact: US Steel was the world’s first billion dollar market capitalization and incredibly popular among retail investors; however, $1 invested in US Steel in 1921 would be worth $1,900 today (this calculation includes its Marathon Oil spin-off in 2001). That compares to $1 invested in the S&P 500, which would be worth $5,000! Replace US Steel with Apple in 2021, and the same underperformance likely happens by 2121.
Meanwhile, Anaconda Steel offers shares at $50 a piece in order to take advantage of depressed valuations. Plunging copper prices over the past three years have turned rivals into acquisitions candidates. Industrialist John D. Ryan, chairman of the board, plans to participate in the follow-on offering.
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