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The COVID Decade

Global Financial Pandemic or Another Bear Market?

Figure 1. Shares of Stock Market Capitalization by Sector in the United Kingdom, 1800 to 1985
Figure 2 illustrates the performance of the Transport sector, the Finance sector and all stocks, as represented by the UK-100 in the 1800s. The most interesting fact revealed by the chart is the changing role of transport stocks in the 1800s. During the first 50 years, transports had more dramatic moves than the rest of the market, reflecting the speculative nature of investing in canals and railroads relative to the rest of the market. The Finance index mirrored the UK-100 index until 1840 because banks represented such a large portion of the total capitalization. Beginning with the Railway Mania of the 1840s, the UK-100 index no longer mirrored the performance of finance stocks. After 1850, transportation stocks represented about 60% of total market cap so there was a strong correlation between transports and the rest of the market. The UK-100 index had three bear markets in the 1800s between December 1809 and October 1812 (down 20.1%), between April 1824 and November 1831 (down 28.7%) and between June 1845 and April 1850 (down 34%). The Transport index had bear markets between June 1810 and October 1816 (down 41.2%), between October 1824 and November 1831 (down 36.2%), between July 1845 and April 1850 (down 57.3%), and between November 1852 and October 1855 (down 23.4%). Transport stocks also had more dramatic moves up in the 1820s (108% vs. 56.9%) and in the 1840s (69.1% vs. 36.3%) than the UK-100 index. As these numbers and Figure 2 reveal, transport stocks were more volatile than the rest of the market between 1807 and 1850.Figure 2. Transports, Finance and UK-100 Indices, 1807 to 1900
Figure 1. Argentina Merval Index Adjusted for Inflation, 1988 to 1991
Similar stock market volatility occurred during the hyperinflation of 1976. The market declined 29% on March 19, 1976 and 18.2% on June 14, 1976. What is interesting is that all the past declines occurred during periods of hyperinflation. On the other hand, August 12’s decline was purely event-driven, caused by election results that could portend a return to high inflation and a possible default in Argentina. Nevertheless, on August 13, the Argentine market bounced back, rising 10% in one day. However, the Argentine Peso continued to decline falling to 60 on August 14 from 45 on August 11. Investors are expecting the worst from the elections due October 27. Fernandez has maintained his lead and it seems likely that he will become the next leader of Argentina. Macri’s attempt to bring Argentina back into the international financial system has apparently failed. Back in the 1920s, Argentina was one of the ten richest countries in the world as measured by GDP per capita, but since the 1940s, Peronist policies have caused stagnation and inflation that has pushed Argentina’s per capita income down to where it barely makes the top 50 today. Unless Argentina can get its economy moving again, it is likely to fall further. Figure 1. Argentina 5% Bond of 1884, 1884 to 1925
Figure 2. Brazil 4.50% Bond of 1883
As the Baring Crisis spread throughout South America, the bubble that had built up in Brazil burst. This led to a steady decline in equity prices in the years that followed. Brazilian share price steadily declined from 1889 to 1893 as is illustrated in Figure 3.Figure 3. Brazil Stock Price Index, 1885 to 1895
The Baring Crisis led to a world-wide depression which, although it was not as severe as some of the other depressions of the 1800s, affected Europe, the United States and South America. Argentina, Brazil and Uruguay were all affected by Argentina’s default and the Baring Crisis that followed. The crisis spread to South Africa and Australia, and in the United States. The global economy suffered throughout the 1890s. No country was left unaffected. Brazil may have suffered from the Great Depression of the 1890s, but so did every other country in the world.Our comprehensive financial databases span global markets offering data never compiled into an electronic format. We create and generate our own proprietary data series while we continue to investigate new sources and extend existing series whenever possible. GFD supports full data transparency to enable our users to verify financial data points, tracing them back to the original source documents. GFD is the original supplier of complete historical data.