The President of Malaise

“Our people are losing that faith, not only in government itself but in the ability as citizens to serve as the ultimate rulers and shapers of our democracy. “

–Jimmy Carter, The “Malaise Speech”, July 1979

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January 9, 2025— President Carter was elected in the 1970s amid the horrors of disco.

Oh, and inflation.

Insidious inflation brought about by soaring energy prices which soared higher, then came back down only to shockingly soar higher once again.

From 1968 to 1980, the Dow Jones traded between 600 and 990, first closing at the 1,000 level in 1968.

Adjusted for the massive inflation of that 12-year period, it posted its second-worst real return of the 20th century. Only the Great Depression fared worse.

The presidency, as successive presidents have proven, is a thankless task.

Carter was elected with the residue of Watergate still clinging to Washington’s underbelly. He ran as an outsider and operated as one. Despite Democratic Party majorities in both houses of Congress, Carter managed to forge his own path to the consternation of lawmakers, which stalled his agency.

Carter also had the problem of what is today called “radical honesty.” It didn’t help his image or legislative effectiveness much.

During the particularly cold first months of 1977 President Jimmy Carter, in what some call “The Sweater Speech,” famously noted how much energy could be saved if Americans simply reduced the thermostat settings for heating their homes. Carter wore a beige cardigan to look warm in a chilly room from the White House, drawing ire and snark among Republicans to this day.

Carter’s failures can be summed up in his “Malaise speech” from 1979.

Modern presidents study this speech as an example of what to not say. It’s the opposite of aspirational. And it’s no surprise that Ronald Reagan’s cheerful demeanor and hope for the future led to his landslide win in 1980.

Carter probably knew better. As a nuclear engineer, he was on the scene at Three Mile Island, showing the world how safe it was. Carter deregulated energy markets and to put his stamp on era of cheap, abundant nuclear energy.

For mostly political reasons, including a progressive revolt, the era of cheap energy independence in the U.S. is only now starting to dawn. A story we detail in our research on Quantum Energy, which you can view here.

Over 40 years later, after Carter the energy markets were deregulated, the theme caught on in lower airline ticket costs and a craft beer revolution for those who like to imbibe.

Of course, we best know Carter for his Federal Reserve appointment: Paul Volcker. The appointment was effectively his most radically honest moment and the one that led to his ultimate demise in politics.

Volcker warned Carter that if he were installed as chairman of the Fed, he would “choke” inflation out of the system. The result, Volcker knew, would likely be high unemployment, business failures, a prolonged recession and the death of any re-election hopes Carter would have.

Carter said, “do it.”

Carter, as foretold, did not get reelected.

But the historic result? Nearly 30 years of declining interest rates. And the longest rally in the Dow’s history.

We know of a few folks who bought long-term bonds in the late 1970s and early 1980s near the interest rate peak of 20%. And they used the income from those bonds to put their kids through college. You’d have a challenge doing that with just an investment in government bonds today.

The facade of declining interest rates, mind you, is beginning to crack. “Another edifice of the post-Volcker era of stability is cracking,” Bloomberg’s John Authers warns this morning, in fact, in a lengthy opinion piece on shifting global bond yields.

Back in Carter’s day, both political parties still belived in the radically honest idea of fiscal responsibility for government and in the markets.

Ronald Reagan helped put an end to that. He may have seen how it was “morning again in America,” but he also promoted the view that “deficits don’t matter.” He ran up the national debt to finance his plan to “spend the Soviet Union out of existence” during the Cold War. Today, neither party nor candidate pretends that fiscal conservatism is part of their mandate.

Alas, we mostly know the Carter era from history books. We hadn’t even attended our first Grateful Dead concert by then. Heck, we hadn’t even had our first meaningful kiss.

Others remember the disco era like it was yesterday.

One such person is my Empire of Debt co-author, Bill Bonner. He penned the following last September, as Carter became the first ex-President to turn 100. ~ Enjoy, Addison

 

Problem Solving
Bill Bonner, Bonner Private Research

Originally published September 4, 2024

‘Our priority now is to balance the budget. Through fiscal discipline today, we can free up resources tomorrow.’

Jimmy Carter, 1980

Jimmy Carter is “coming to the end,” says his grandson, “but he’s still there.” We will speak of Mr. Carter in the past tense… but hope he makes it to his 100th birthday on October first.

What a pity!  The old conservatives have disappeared…both from the Republican and Democrat ranks.

Mr. Carter was a Democrat… but of a different era… with conservative instincts. He feared God and loathed the Devil. He got married and stayed married. And he lived in the same modest house for the last half a century.

Carter believed in science and man’s capacity to make improvements (after all, he was a nuclear engineer!) But he knew there were limits… things you shouldn’t do. When you’re in a submarine you don’t sleep with the windows open.  And when you are on the surface, you don’t spend money you don’t have.

After Jimmy Carter left the White House, the US budget was almost never balanced. There was no fiscal discipline. Today is yesterday’s tomorrow. And the resources that should be available today are already gone…used to solve yesterday’s problems that were better left alone.  And now, those spent resources are entombed in $35 trillion of debt, dragged into the future like a ball and chain attached to every newborn.

What to do in such a world? How do you protect yourself?

Gallup pollsters asked people what they considered the best long-term investment. As expected, most cited stocks… or bonds… or real estate.

But one curious crack appeared. Twenty-seven percent of Republicans chose gold as the best place for their money, nearly four times as many as Democrats.

The basic numbers are simple. Looking back over 100 years, gold went from $20 an ounce in 1924 to around $2,500 today. Up 125 times. Stocks went up more than 400 times (measured by the Dow). But the averages can be misleading.

More than half of all stocks went nowhere… for zero gain, while a few went ‘to the moon.’ The best performing stock of all time, for example, was the cigarette maker, Altria (formerly Phillip Morris)— whose stock rose 265 million percent.

Rates of return on bonds varied too, but bonds are particularly susceptible to inflation. Few bond investments were able to outrun the dollar’s 98% loss.

And real estate? One study says $100 invested in real estate in 1928 would be worth 50 times as much today. Maybe. But some areas have gone up dramatically; others have not. We once studied properties in Baltimore and concluded that the old mansion that now serves as our company headquarters probably peaked out — in real terms — in the late ‘20s. It’s been downhill ever since.

The lesson we draw from this is that if you really don’t want to lose money, you should buy gold. If you want to make money, on the other hand, you need to do some serious research on individual companies… and get lucky.

We believe you’re much more likely to be lucky if you buy stocks when they are cheap and sell them when they are expensive — using gold as the key metric. That is the essence of our Dow/Gold strategy. When the Dow falls below 5 ounces of gold, we buy stocks. When it goes over 15 ounces of gold, we sell them.

But why would Republicans have a different opinion of gold than Democrats?

Yesterday, we backtracked over the last 100+ years of financial problem solving by the feds. Their ‘solutions’ always involved spending more money… or making more money available at lower interest rates. They ‘threw money at the problems,’ we concluded, and made them worse.

If the feds had merely sat on their hands — instead of pretending to ‘solve problems’ — today, our national debt would probably be about the same portion of GDP that it was under Jimmy Carter, about 32%. Instead, it is 125%.

But both Democrats and Republicans have had their conservative instincts washed away on a tide of cheap money. Democratic voters still believe they can craft a better world, by spending money they don’t have. They want to elect politicians who ‘solve problems’ and think it will pay off… at least for them.

Republicans, perhaps with a trace of conservatism still in their DNA, are skeptical. They buy gold to protect themselves against the Democrats’ problem-solving. ~ Bill Bonner, Bonner Private Research

Rest in Peace, Jimmy.

Regards,

Addison Wiggin,
Grey Swan

P.S.  The markets are closed today in honor of the 39th president’s passing. Meanwhile, our intrepid Portfolio Manager, Andrew Packer, is attending a Hillsdale College Freedom Forum in Palm Beach Gardens, FL. The theme of this one “Freedom and Western Civilization.” We look forward to sharing Mr. Packer’s thoughts on the forum next week.

P.P.S. “I love playing with numbers,” writes George F. in response to yesterday’s piece on Greenland. He continues:

A gigaton of ice is roughly equal to 100 acre-feet of water, so 5,000 gigatons of water is about 5 million acre-feet of water. Calculated over the ocean’s surface, that would raise the ocean level about two-thousandths of an inch, or about 0.067 mm.

I read years ago that if ALL of Greenland’s icecap melted, it would raise the oceans about six meters. This means that if Greenland lost a net 5,000 gigatons of ice per year, it would be ice-free in 89,000 years. Of course, it also gains ice through new snowfall, and I have no idea whether there is a significant net increase or decrease, but while 5,000 gigatons of ice sounds like a scary-big number, it turns out to be insignificant and of no consequence.

“I was going to read the article you linked in the NYT magazine,” George concludes “but it wanted me to register, and I didn’t care enough to do so…

“Keep up the good work.”

As always, you can send your own comments on the Grey Swan here: addison@greyswanfraternity.com.