“History repeats itself, first as tragedy, second as farce” – Karl Marx
I’m going to make a prediction about the 2012 presidential election. OK, not really. I’m actually going to make some tenuous connections of historical presidential types and claim that Obama might just be the new Jimmy Carter – which bodes ill for his re-election chances.
First, consider the following plot of the “Dow/Gold Ratio” borrowed from “sharelynx“. The “Dow/Gold Ratio” is, of course, simply the Dow Jones Industrial Average (stock prices) divided by the price of an ounce of Gold. It is, therefore, simply the stock price measured in ounces of gold.
Various places will offer commentary on what is meant by the “Dow/Gold Ratio” – the best that I’ve heard is that it is a relative comparison of trust in “the system”. That is, when stocks are high and gold is low (Dow/Gold high), people are displaying a general belief that the fiscal and economic system in which we live is fundamentally sound and there is no need to worry. However, when stocks are low and gold is high (Dow/Gold low) it means that people don’t trust the system and are fleeing to gold (a shinny metal of limited quantity). As the chart notes, there is a clear difference in the “trust in the system” behaviors before and after the creation of the Federal Reserve – which is interesting but not the topic of this post.
In the next plot we focus on the time period from the 40s through today and overlay the presidents with commentary about system confidence along the way. The trend goes something like this:
- Hope in a dreamy new reality
- Acceptance that perhaps the dreams were a little overblown and some adult (conservative) leadership is needed
- Disillusionment with a “conservative” who didn’t live up to his supposed ideals followed by an “unlosable” election …
- Total destruction of system confidence by a wide-eyed liberal who hasn’t a clue
- The entrance of a new, adult leader who restores confidence
- Wash, rinse, repeat
First it was Kennedy with Camelot, followed by Johnson and the Great Society. There was this dreamy feel that we really were on to something new here. This was a peak in confidence in the system; we’d finally arrived at the new (and better) reality. When it didn’t really hold together we turned to an adult conservative in Nixon – who turned out to be not so trustworthy and brought confidence in the system low. Tricky Dick was impeached, which led to an unlosable election in which Democrats chose to run a pedantic child of an “outsider” who they hoped would finally break free from the laws of physics and human nature and usher in true liberalism. Carter won by virtue of not being a Republican, and proceeded to destroy any belief that the system could work at all – the Jimmy Carter “malaise” if you will. This led to Reagan, and the long drive toward restoration of confidence in the system.
Will history repeat itself? Let’s see. We had the dreamy hope of the Clinton years – the 2nd Camelot and the dot-com boom. This time it was different. We had again reached peak confidence in the system (high Dow/Gold ratio). But, as before, we needed an adult in the White House – someone who wouldn’t “not have sexual relations” with interns. The supposed “conservative” turns out to not quite live up to conservative ideals and oversees a massive Fed-induced housing bubble followed by collapse. While not as bad as Watergate, the collapse of the housing bubble led to an unlosable election. Instead of nominating the pragmatic choice (Hillary Clinton), the Democrats picked a pedantic child with dreams of hope and change … this time it will be different – “yes we can” break the laws of physics and human nature and finally make socialism work.
Will Obama and the not-yet-solved banking crisis usher in another down-leg in confidence in the system, leading to a Romney presidency? I don’t know. But I think the cycle is interesting, and I suspect the Obama administration is pushing hard to have Bernanke, Geithner, Merkel, and any other leader who will listen to stave off the Euro crisis just a little more. Only 144 days to the election … will it hold up?
(Yes, I’m aware that the correlation of presidential types and system-trust gives a Romney=Reagan implication. I don’t buy that at all, but their names do both start with R and have six letters.)