The Leonid meteor shower hit its zenith over the weekend, and you didn’t even need a telescope to see it. You did need a warm blanket, but all you had to do was lay down on your back to enjoy a great show. A meteor is a space rock, or meteoroid, that enters the Earth’s atmosphere, and as it falls to Earth, the air resistance makes it extremely hot. What we see is a “shooting star.” When Earth encounters many meteoroids at once, we call it a meteor shower.
Similarly, a “meteor shower” is getting ready to “hit” Washington D.C. as the Mueller investigation is nearing its conclusion. Washington Whispers have it that some meteoric “bomb shells” are going to be revealed. What the impact will be on the equity markets is difficult to analyze, but in an attempt to do so, we reviewed our notes of 1972, 1973, and 1974. President Nixon was reelected in November of 1972, and shortly thereafter, the Watergate scandal news surfaced. In March-April of 1973, the scandal heated-up as Magruder admits perjury with the D-J Industrials trading around 1000. On April 17, 1973, Presidential News Secretary Ziegler declares all previous statements about Watergate are “inoperative”, leaving the Industrials at ~925. From there, the senior index bobs and weaves until eventually bottoming at 851.90 in August 1973 and then rallying back to 987.06 in October. On October 10, Vice President Agnew resigns, and on October 23, President Nixon announced he will release the Watergate tapes, and the Industrials began to slide. The slide subsided in December 1973 around 788 and stabilized there, followed by a throwback rally to 891 in March 1974 where a secondary stock slump began. That decline would see the Industrials fall to 577.60 on December 6, 1974 as the news backdrop read: more Watergate disclosers, President Nixon resigns, Franklin National Bank collapses in the biggest bank failure in U.S. history, the investing public pull in their horns as the economy sinks into the worst recession since the 1930s, new cars sales plunge 34%, housing starts are at an eight-year low, and Americans are allowed to legally buy gold.
It was in December 1974 we penned our first strategy report, noting that stocks were trading below “known values” and should be accumulated. For example, in 1974, there were stocks trading below cash per share. Another “tell” was when we called on Laurence Alan “Larry” Tisch (Chairman of Lowe’s Corporation) and asked him why he was buying shares of Overseas Ship Group. He responded, “Because I can buy the entire company out at its current market capitalization, melt down all the ships, and sell the scrap steel for three times what I am paying for the stock.” It was also in December 1974 that the D-J Industrials were smashed to a 12-year low, but the D-J Transportation Average refused to confirm the downside (a Dow Theory downside non-confirmation), and subsequently, a Dow Theory “buy signal” was registered and the 1973 to 1974 bear market ended.