Bear Market






Economy in 1973

Houses of the Holy

Economic Problems Beginning in 1973
The thriving economic growth of the post World War 2 boom starting in 1947 had finally ground to a halt in 1973. Starting in February, a stock market crash and inflation increase occurred, followed by recession and unemployment. This precipitated the lingering Stagflation issues that stifled the economy throughout the 70's.

Stock Market
Starting in February 1973 the value of the S&P 500 declined by over half and the Dow declined by 45% over 21 months.
The average trailing PE ratio slumped from 17-18 to 7-11 and stayed at that level for a decade.
The stock market was so affected that it took until August 1983 to return to the same levels of January 1973.

Dow Jones Industrial Average

Recession
The post war boom that started in 1947 had slowed to a crashing halt in 1973.
The annual GDP ratio dropped from a pre 1973 value of 3.6% per year to 2.8% after 1973.
Productivity growth dropped from 2.5% to 1.5%.
GDP growth rate dropped from 7.2% to -2.1% in 1973. Real GDP level fell 3.2%.

Gross Domestic Product

Inflation
The inflation rate ranged from 2.94% to 3.61% in 1972. In January of 1973 the inflation rate was 3.61 but increased dramatically throughout the year, to 6.8% in the Third Quarter, and to a high of 8.71% in November. The inflation rate continued to increase in 1974 to a high of 12.3%.

Inflation Rate

Unemployment
Unemployment was close to 5% throughout 1973 and started to rise in 1974 until it reached 7.2% in the 4th Quarter of that year, reaching a high of 9% in May 1975.

Unemployment

Income growth
A slowdown in income growth started in 1973.
Between 1947 and 1973 family income increased over 100%, increasing at an average annual rate of 3.19%.
Between 1973 and 2004 family income only rose 22%.
Between 1973 and 2006 family income for the bottom 90% increased at an average annual rate of .5%.
Between 1973 and 1987 the income of families headed by someone less than 30 years of age fell 30%.

Hourly Earnings

Productivity and Compensation

Factors that exacerbated the economic malaise

Oil Crisis: The OPEC oil embargo began on October 17 which increased the price of oil from $3 per barrel to $12 dollars per barrel. This embargo had a suppressive on the US economy and coupled with the stock market crash was the first event since the Great Depression to have a persistent economic effect.

Crude Oil Prices

Federal Reserve Chairman, Arthur Burns (1970 - 78): Burns did not respond appropriately to the inflation problem. He did not believe the Federal Reserve should be expected to cope with inflation single-handedly. He backed an expansive monetary policy where the prime interest rate was left relatively high. Burns ultimately received poor marks for his handling and control of inflation that took more than a decade to resolve.

The Steel crisis: A recession in the global steel market occurred in the 1970's. Newly industrialized nations had begun producing steel and supply became greater than demand. As a result steel prices dropped significantly driving many US steel mills out of business. This led to a restructuring of industrial core areas in the US.

Food Price increase: Food prices begin to increase in 1973 due to large Soviet purchases of wheat, corn and soybeans. President Nixon freezes retail food prices and imposes a temporary embargo on soybeans and cottonseeds.


Prices Since 1973

Since 1973 prices for three key areas have increased: Housing, Health Care and Education.
In 1973 these components consumed 37% of income for the average household. Currently this figure is 45%.

Significant price increase since 1973:
Housing
Health Care
Education
Gasoline
Automobiles

Inflation Calculation
An item purchased in 1973 for $10, in 2012 that same item would cost $51.26.
Item in 1973 purchased for $100 would cost $512.
For ballpark comparison of 1973 prices to today's prices - multiply 1973 prices by 5.


Cost of Living 1973 Compared to Today

Consumer Price Index:
1973: 42.6 - 44.4
2012: 227.7
Consumer Price Index

Inflation:
1973: 3.65% (Jan) - 6.16% (Dec) (peaked at 8.71%) and trending upward into 1974
2012: 2.87%

Unemployment
1973: 4.9%, but began to increase in 1974
2012: 8.3%

Misery Index (Combination of Unemployment and Inflation)
1973: around 15% trending upward to reach second highest peak ever at 20% in 1974
1981: highest peak ever 22%
2012: 11.17%
Misery Index

Dow Jones
1973: 850
2012: 13,252

Minimum Wage
Minimum Wage 1973: $1.60 per hour
Minimum Wage 2009: $7.25 per hour

Median Household Income
Median Household Income 1973 Actual: $9,268
Median Household Income 1973 Adjusted for Inflation: $46,109
Median Household Income 2010: $49,445

WHAT THINGS COST
Median cost of New House January 1973: $29,900
Median cost of New House December 1973: $35,700
Median cost of New House October 2011: $212,300

Average monthly Rent 1973: $175
Average monthly Rent 2008: $928

Gasoline: .39 per gallon

Car Purchase Price for Selected Models in 1973
AMC Javelin: $2900
Chrysler Duster 340: $2822
Dodge Charger: $2823
Dodge Dart Sport 340: $2853
Ford Galaxie 500: $3883
Ford Thunderbird: $6437
Jaguar Series III E Type V12 Convertible: $8470
Lincoln Continental: $7474
Mercury Cougar XR7: $3679
MG MGB Roadster: $3320
Oldsmobile Tornado: $5441
Plymouth Satellite: $3226
Volkswagen Beetle: $3050
Volkswagen Thing $3150

Miscellaneous

Movie: $1.75

First Class Postage Stamp .08
Postcard Stamp .05
Airmail Stamp .10

GE Refrigerator 14.7': $298
GE 19" Color TV: $299
CB Radio: $147
8 Track Stereo Player: $38.99
Rival Crock Pot: $14.88
Bean Bag Chair: $19.99
Garbage Disposer: $29.88
Oil Filter: $1.79
Pocket calculator "mini slide rule": $69.95
Texas Instruments SR-10 calculator: $150
Sears Jeans: $4.99
Malibu Barbie: $1.99

Food
Milk: 1.31 per gallon
.37 per quart
Bread: .27 per loaf
Pumpernickel: .49 per loaf
Italian bread: .35 per loaf

Egg noodles: .32 per pound
Spaghetti: 3 pounds for 1.29
Rice: 3 pounds for 1.99
Cornmeal: .33 for 24 oz
Lentils: .46 per pound
Kidney beans: .41 per pound
Flour: .20 per pound

Canned tomatoes: .41 for 1 pound 12oz.
Tomato sauce: .12 for 8oz. can
Tomato juice: .10 for 5 1/2 oz. can

Coffee: 1.00 per pound
Sugar: .65 for 5 pounds
Butter: 1.00 per pound
Margarine: .36 per pound
Cottage Cheese: .51 per pound
Sour cream: .49 pint
Yogurt: .31 half pint
Eggs: .69 per dozen, medium .72, large .78

Ground chuck: .99 per pound
Hamburger: .66 per pound
Bacon: 1.09 per pound
Pork shoulder: .69 per pound
Hot dogs: .85 for pkg of 10
Ham: .99 per pound
Chicken: .39 per pound
Chicken Livers: 1.09 per pound
Haddock: .89 per pound

Onions: .20 per pound
Carrots: .17 per pound
String beans: .29 per pound
Potatoes: .89 for 10 pounds
Yams: .19 per pound
Pepper: .39 per pound
Beets: .30 per four
Escarole: .29 per head
Acorn Squash: .10 per pound
Cabbage: .19 per pound
Spinach: .32 per pound
Cucumbers: .15 each
Zucchini: .41 per pound
Tomatoes: 3 for .30
Broccoli: .39 per bunch
Lemons: 5 for .59

Garlic: .16 per head
Parsley: .20 per bunch
Dill: .20 per bunch
Chives: .18 per bunch
Basil: .17 for 1/2 oz
Oregano: .39 for 2 5/8 oz
Cinnamon: .89 for 4 oz
Salt: .16 for 32 oz
Pepper: .85 for 8 oz

Red wine vinegar: .29 per pint
White vinegar: .47 per quart
Vegatable oil: .63 per pint
Olive oil: 1.89 per quart
Miracle Whip: $1.09

Corn Flakes: .25 for 12 oz box
Oreos: .49 for 15 oz pkg
Hershey bar: .10
Pepsi: .77 for 6 pack


Company Startups 1973
Apollo Group
B&H Photo
Billabong
Cablevision
Center for UFO Research
Compuware
Crabtree & Evelyn
Deckers Outdoor
Federal Express
Godfather's Pizza
LexisNexis
Lipper
MBIA
Men's Warehouse
Python (Monty) Pictures
RE/MAX
Tandy

The Abington Shoe Company becomes Timberland
In 1973, the brand name "Timberland" was introduced for the waterproof leather boots produced by the company. Because the boot proved to be very popular, the company name was officially changed to The Timberland Company.


US Dependency on Foreign Oil
US dependency on foreign oil has been a key topic during political statements and discussion. However, despite the rhetoric US dependency on foreign oil has continued to increase. In 1973 US foreign oil provided 35% of US consumption, but after several statements by the presidents, this figure was 60% in 2006. Though to be fair that figure has dropped to 47% recently.

Statements by Presidents Regarding US Dependency on Foreign Oil

President Nixon, January 30, 1974: "Let this be our national goal: At the end of this decade, in the year 1980, the United States will not be dependent on any other country for the energy we need to provide our jobs, to heat our homes, and to keep our transportation moving."

President Ford, May 27, 1975: "We are now paying out $25 billion a year for foreign oil. Five years ago we paid out only $3 billion annually. Five years from now, if we do nothing, who knows how many more billions will be flowing out of the United States. These are not just American dollars, these are American jobs."

President Carter, April 18, 1977: "Tonight I want to have an unpleasant talk with you about a problem unprecedented in our history. With the exception of preventing war, this is the greatest challenge our country will face during our lifetimes. The energy crisis has not yet overwhelmed us, but it will if we do not act quickly."

President Reagan, July 17, 1981: "Given our continued vulnerability to energy supply disruptions, certain emergency preparations - such as rapid filling of the Strategic Petroleum Reserve - remain principally a government responsibility. But our basic role is to provide a sound and stable economic and policy environment that will enable our citizens, businesses, and governmental units at all levels to make rational decisions on energy use and production."

President George H.W. Bush, Sept. 11, 1990: "As I've pointed out before, conservation efforts are essential to keep our energy needs as low as possible. And we must then take advantage of our energy sources across the board: coal, natural gas, hydro, and nuclear. Our failure to do these things has made us more dependent on foreign oil than ever before."

President Clinton, Feb. 16, 1995: "The nation's growing reliance on imports of oil ... threatens the nation's security."

President George W. Bush, Jan. 31, 2006: "Keeping America competitive requires affordable energy. And here we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world."

President Obama, May 7, 2011: "But over the long term, the only way we can avoid being held hostage to the ups and downs of oil prices is if we reduce our dependence on oil -- That means investing in clean, alternative sources of energy, like advanced biofuels and natural gas. And that means making cars and trucks and buses that use less oil."

US Dependency on Foreign Oil


Dow Jones then / now
The Dow Jones Industrial Average provides a good benchmark of the entire stock market. It is comprised of 30 giant companies that are periodically reviewed. The laggards are eliminated and market leaders added on a regular basis. Only one company, General Electric, remains from when the DJIA was first published in the Wall Street Journal in 1896.

Dow Jones Companies in 1973 and how they've fared since (Bold = The company is still in the Dow Jones Industrial Average as of 2012)
Allied Chemical - Defunct as a brand, merged with Signal, acquired Honeywell and assumed the name; no longer in the Dow
Aluminum Company of America (Alcoa) - Now Alcoa and still in the Dow
American Can - Defunct as a brand, renamed as Primerica in 1987, divested the manufacturing arm
ATT - Acquired by SBC which assumed the ATT name, still in the Dow
American Tobacco Company - Defunct, became subsidiary of American Brands which divested the tobacco business
Anaconda Copper - Defunct, purchased by Atlantic Richfield, exists now only as an environmental liability
Bethlehem Steel - Defunct, bankrupt in 2003, assets sold to International Steel
Chrysler - No longer in the Dow, still in business after US Government bailout
DuPont - Still in the Dow
Eastman Kodak - No longer in the Dow, still in business but filed for Chapter 11 bankruptcy in January 2012
Esmark - Defunct, Holding Company for Swift, ultimately acquired by ConAgra
Exxon - Now Exxon Mobile, still in the Dow
General Electric - Still in the Dow
General Foods - Defunct as a brand, acquired by Phillip Morris, now part of Kraft
General Motors - Still in business, Chapter 11 Bankruptcy in 2009, no longer in the Dow
Goodyear Tire and Rubber - Still in business, no longer in the Dow
International Harvester - Defunct, renamed Navistar International in 1986, then sold off its agricultural division
International Nickel - Defunct, changed name to Inco in 1976, sold to Special Metals Corp, bankrupt in 2002
International Paper - Still in business, no longer in the Dow
Johns-Manville - Still in business, no longer in the Dow
Ownens-Illinois - Still in business, no longer in the Dow
Proctor and Gamble - Still in the Dow
Sears Roebuck and Company - Still in business, no longer in the Dow
Standard Oil of California (Chevron) - Merged with Texaco, changed name to Chevron, still in the Dow
Texaco (Chevron) - Merged with Standard Oil and now named Chevron, still in the Dow
Union Carbide - Defunct as a brand, now wholly owned subsidiary of the Dow Chemical Company
United Aircraft (United Techologies) - Changed name to United Technologies, still in the Dow
US Steel - Still in business, no longer in the Dow
Westinghouse Electric - Still in business, no longer in the Dow
Woolworth - Defunct in 1997

Changes to the Dow since 1973
Companies still in the Dow Jones: 9
Companies Defunct either by bankruptcy or acquisition: 11
Companies still in business, no longer in the Dow Jones: 10

Dow Jones Industrial Average Today (Bold = The company was in the Dow Jones in 1973)
3M
Alcoa
American Express
ATT - comprised of 4 "Baby Bells" of the old AT&T
Bank of America
Boeing
Caterpillar
Chevron - merger of Standard Oil and Texaco
Cisco
Coca-Cola
DuPont
Exxon Mobile - merger of Exxon and Mobile
General Electric
Hewlett Packard
Home Depot
Intel
IBM
Johnson and Johnson
JP Morgan Chase
Kraft Foods
McDonald's
Merck
Microsoft
Pfizer
Proctor and Gamble
Travelers
United Technology
Verizon - comprised of 2 "Baby Bells" of the old AT&T
Wal-Mart
Walt Disney

Changes to the Dow Jones reflect changing technologies, demographics, consumer tastes, consolidation, foreign competition and macro economic forces.

In by 2012 - Companies new to the Dow Jones by Industry
Computer: Cisco, Hewlett Packard, Intel, IBM, Microsoft
Financial and Insurance: American Express, Bank of America, JP Chase Morgan, Travelers
Pharmaceutical: Johnson & Johnson, Merck, Pfizer
Food and Beverage: Coca-Cola, Kraft, McDonald's
Broadcast and Entertainment: Walt Disney
Home Improvement Retail: Home Depot
Retail: Wal-Mart (replacing Sears and Woolworth)
Aerospace and Defense: Boeing
Construction and Mining: Caterpiller
Conglomerate: 3M

Out by 2012 - Companies no longer in the Dow Jones by Industry
Auto Manufacturers: Chrysler, General Motors
Tire Manufacturer: Goodyear
Basic Materials: Anaconda Copper, International Nickel
Steel: Bethlehem Steel, US Steel
Chemical: Allied, Union Carbide
Farm Machinery: International Harvester
Paper: International Paper
Photography: Eastman Kodak
Tobacco: American Tobacco
Building Materials: Johns Manville
Packaging: Owens-Illinois, American Can
Food: Esmark, General Foods
Retail: Sears, Woolworth
Energy: Westinghouse


Length of Recessions