December 26, 1921-January 1, 1922
This week, the Dow finishes the year on a bullish note and enters 1922 poised for greatness. Global sentiment, however, remains tepid.
Quick Stats:
DJIA: 81.10 (Today: 35,951)
Shiller PE Ratio: 6.2 (Today: 39.7)
Federal Reserve Bank of NY Discount Rate: 4.5% (Today: 0.25%)
GBPUSD: $4.22 (Today: $1.34)
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:
Nothing material impacts the broad equity markets this week, but the overall tone is firm and cheerful. Optimism has started rearing its head more often in the FT and WSJ. The Dow ends the year +11% after surviving the worst deflationary recession in living memory.
On Tuesday, the WSJ lays out a fantastic front page article discussing how Henry Ford dazzles audiences and shapes public opinion through a barrage of media appearances. He is not just a great businessman, but also a tastemaker. Ford owns the largest car company and largest Hollywood film studio, and wields both to brilliantly influence society.
Historical Fact: Henry Ford and Elon Musk, while separated 100 years apart, personify the celebrity-businessman. There’s one thing, however, that Musk and Ford would disagree on: Tesla and SpaceX spend zero on marketing. Who knows what Ford would have done with Twitter!?
Wall Street attention is now turning to the forthcoming Five-Power Economic Conference (US, UK, Japan, France, Italy) which is expected to take up exchange rate, debt funding, reparations, and other kindred problems. Significant uncertainty regarding the value of German assets hangs over markets; German debt, on average, lost 60% of face value, while the mark dropped 80% against the dollar during 1921.
Wednesday’s FT headlines an article titled “Russians Revive,” which details Lenin’s plan to return confiscated property under his New Economic Policy. This “free market with state control” mandate revives dormant shares on the London Stock Exchange. In chaotic trading, speculators bought anything from Russo-Asiatic stock to Trans-Siberian Railway bonds. Other lesser known companies followed in sympathy, all surging 15-25%.
Historical Fact: If this sounds funky, just wait 7 more years. In 1928, Stalin scraps Lenin’s NEP and dives head first into pure communism (known as the Great Break). Several of Stalin’s policies will remain until 1991 when the USSR dissolves.
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