Weakest stock market rally ever

17 Jul, 2013 by John Seiler

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Despite stubbornly high unemployment, one supposed highlight of the Obama recovery is the booming stock market. Actually, it’s one of the weakest bull markets on record. Here’s a graph from Chart of the Day showing what has happened.

As you can see, the greatest rally ever began in 1942. The chart doesn’t show it, but the rally began after the great Battle of Midway that June. It was only six months after Pearl Harbor. Three American aircraft carriers faced off against four carriers of the Imperial Japanese Navy. We lost one, they lost all four.

America’s industrial capacity was 10 times that of Imperial Japan, so there never was any doubt we would win. But the U.S. command had to decide how much of the war effort to devote to fighting Japan, and how much to defeating Nazi Germany. The Midway victory insured that the plan to devote 3/4 to Germany, 1/4 to Japan would continue. Meaning first the more powerful Germany would be crushed, then Japan. Which meant the war would be won earlier than if more had to be devoted to Japan.

In 1942, President Roosevelt also agreed to lessen his New Deal assault on businesses to allow them to become the Arsenal of Democracy, which is what happened. As they said at the time, he went from being “Dr. New Deal” to “Dr. Win the War.” Most of the New Deal was junked, something that continued after the war, when prosperity roared ahead in 1946, especially after taxes were cut that year. That is, despite many wartime controls, in 1942 capitalism was unleashed.

In the chart, the next strongest rally began in 1987, after President Reagan’s 1986 tax cuts. And the third strongest rally was in 1921, after President Harding restored America to post-war “normalcy,” as he called it, by cutting taxes.

The message is clear: Freeing businesses to make profits generates prosperity, not just for businesses and markets, but for everybody.

By contrast, the current “recovery” occurs amid massive recent new regulations, including Obamacare, the Dodd-Frank anti-business “reform,” and Republican President Bush’s Sarbanes-Oxley anti-business reform.

This will weigh heavily on us during the next recession, whenever it occurs. We will by nosediving into a slump from a much lower level than we otherwise would have during a stronger recovery.

And here’s the great director John Ford’s short film on the Battle of Midway, where he was wounded directing crews filming the action. So this is real footage, although the sound effects were added. They didn’t have iPhones in 1942. Ford became an admiral during the war. Two of the narrators you hear are those of Henry Fonda and Jane Darwell, fresh from being directed by Ford in “The Grapes of Warth.”