By Mike Adams
Why does it matter for investments? History doesn’t repeat but it rhymes. There are lessons for today’s investments.
The President has instituted tariffs against Canada, Mexico, and China. Then he delayed the Mexico tariffs. Tariffs may or may not launch a trade war. Don’t panic!! Read on to understand the impact.
William McKinley was the 25th President of the United States serving from 1897 to 1901. He was a major proponent of and did raise tariffs of 38% to 50% to generate Federal revenues and protect American business. It was during McKinley’s term that the Hawaiian Islands were annexed to and became part of the United States. Until 2015 Mount Denali in Alaska had been known as Mount McKinley.
Since 1870 and through 1913 there was a super cycle where worldwide GDP was significantly higher than average. That super cycle was led by the industrialization of the United States. McKinley served during that the latter part of that time. It was during that time that George Eastman founded Eastman Kodak; Charles Hall founded Alcoa; Thomas Edison founded General Electric; Alexander Graham Bell founded Bell Telephone Company (AT&T); George Westinghouse founded Westinghouse.
Each of those companies were financed by investors: Kodak by Henry Strong; Alcoa by Andrew and Richard Mellon; AT&T by Thomas Sanders; GE by JP Morgan.
Following the Civil War the United States was moving from an agricultural nation to an industrial powerhouse. While average GDP was higher than average it was concentrated on the industrial side. Agriculture slumped. From 1870 to 1907 there were six panics like we experienced in 2008-9. Unemployment was high as farm workers moved to the cities. The cities were overcrowded with inadequate water, unpaved streets and disease.
There was no central bank like the Federal Reserve.
The 2nd National Bank charter was terminated in 1833 but before the first Great Depression of the 1840s. There would be no central bank until 1913 when the Federal Reserve was created.
56% of the families lived in poverty with an income of less than $3,000 in today’s dollars. Income tax rates were 1% on incomes over $3,000 in today’s dollars with a 6% surtax on those earning over $14,000,000 a year in today’s dollars.
By the time McKinley was President the biggest crisis was manure. Horses produced 55 pounds of manure a day. In New York City 2.5 million pounds of manure had to be swept up every day into manure piles some as much as 60 feet high. To get from one side of the street to the other sometimes people had to hire a sweeper to shovel the manure to make a path across the street. Dead animals were left in the streets. Typhoid and other diseases flourished. New York City was typical of the other large cities in the country.
All that to say it was not a pleasant life for the average American.
McKinley favored tariffs as the way to finance the government. That seems to be the way our current President Trump wants to go. The income tax was 1% and Trump wants to do away with income tax and rely on tariffs.
No one knows what the impact will be in today’s world. Times are very different from McKinley’s time. But there are some lessons that make sense. Estimates vary if the trade wars continue. They may not. But plan for them to be ongoing.
In the immediate few months grocery prices will increase. There will probably be some supply chain issues. Inflation will pick up around 1% according to a number of estimates by economists. That is not like the increase to 9% in 2021. The Fed is unlikely to increase fed fund rates and unlikely to lower rates.
The tariffs will probably result in a lowering of GDP by 1.5% but that does not mean recession. The economy will continue to chug along although at a reduced rate.
There is no reason to panic. Some companies will actually benefit while others suffer.
Investing in the blue-chip companies of McKinley’s time was a losing proposition. The original DOW in 1896 were the titans: American Cotton Oil, American Sugar Refining, American Tobacco, Chicago Gas, Distilling & Cattle Feeding, General Electric, Laclede Gas, National Lead, North American Company, Tennessee Coal and Iron, U.S. Leather, and U.S. Rubber. Only GE survived longer-term. The others were dissolved or broken up or taken over.
Winning investments from McKinley’s time were in the companies that were changing technology, demographics and lifestyles: GE, Kodak, Alcoa, AT&T, Westinghouse.
The clients at Adams Financial Concepts have done so much better than the very large majority of clients with other financial advisors. The reason is investment in a few companies focused on improving the world through changing technology, demographics, and lifestyles.
No one knows what the impact of tariffs will have on the economy. But we believe in a rhyming history that to achieve success over the longer-term investors need to own a focused portfolio of stocks in those special companies of the future, not the past. It has worked for over a hundred years. It has endured through two world wars and multiple conflicts like Korea and Vietnam. It worked during the Great Depression, Great Recession, and numerous recessions. It worked during the Great Inflation of the 1970s. It worked even having experienced two Presidential assassinations. It worked in the face of Communism and a Cold War. It has worked even with nuclear meltdowns, tsunamis, and pandemics. It worked in McKinley’s time. It worked even in the face of those tariffs in the 1890s. We believe it will continue to work in the future.
You can learn more about not over diversifying portfolios by logging into a workshop done by Al Souza of Adams Financial Concepts: https://adamsfinancialconcepts.com/webinars/diversification-…really-protected/
Article Written By:
Mike Adams, President & Principal
Adams Financial Concepts LTD
1001 Fourth Ave, Suite 4330, Seattle WA 98011
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