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A Meander Through Trade History

August 2019 Insight

Trade is not a new concept. Across the millennia trade quantities have increased and decreased with the waves of politics. In some time periods those involved with trade were viewed in an extremely unfavorably light; for example, Roman art depicting merchants as living in the lowest levels of hell. Other time periods looked upon trade much more favorably with merchants gaining riches and influence in government and politics. Those ebbs and flows often led to military conflict. The Opium Wars are one such example. It is no coincidence that the most damaging war ever fought on the North American continent (as measured by loss of human life) – the American Civil War, another war with its root causes in trade – was fought during the same time period.

While Britain fought the Opium War half a world away, trade with Confederacy states dropped by 90%, causing a severe shortage of cotton. There were constant rumors of Britain sending military help to the South, but the North threatened retaliatory war and cutting off food exports to Britain. Britain couldn’t take that chance and never provided the assistance the South so badly craved.

The war opened Britain’s awareness to the severe risks of trade disruption to the island nation. This fear was in part the catalyst for Britain signing the Cobden-Chevaliar with France the same year that both the second Opium War and the Civil War ended in 1860. The agreement is deemed to be the first free trade agreement in history. Over time more and more European nations joined the treaty, ushering an almost unprecedented period of peace on the European continent.

However, the problem with peace is that eventually people forget the cost of war, and issues that are deemed insignificant during times of true turbulence start to create relational fissures. By the end of the 19th century and into early 20th century the peace on the continent was held together by the increasingly antiquated and stretched free trade agreement. More damaging, the existence of the agreement papered over the growing fissures throughout the continent.

It was from this environment that the assassination of Archduke Franz Ferdinand of the Austria-Hungary Empire on June 28, 1914 ignited the spark that turned the European continent into the stage of the world’s largest war to date, now known as World War 1.

Throughout the first half of 1914, US stock markets moved mostly sideways with no discernable impact upon the death of the Duke. Suddenly, on July 31st of that year, the import of the situation hit the market and things no longer went sideways, they went down, quickly. The entirety of the US financial markets were shut down until November 28th when bonds started to trade again. The stock market came back on line December 15th, but only in theory, as stocks were not allowed to trade below their July 31st price (prices which in aggregate were ~30% lower than they had been only a few days prior).

Trade largely resumed after the Great War. The United States economy boomed (around several busts, but considerably higher in aggregate) and the losers of the War printed money without restraint.

The US economic exuberance of the decade of the 1920s created euphoria amongst stock investors, which in turn, as all bubbles do, burst in 1929 as a massive market correction. Only a small portion of the population suffered damage, as only a very small portion of the population owned stocks at the time.

As with all bubbles, the bursting of the bubble requires a catalyst. The catalyst for this “POP” occurred on October 21, 1929 when 16 senators that previously opposed Smoot-Hawley caved to political pressure and horse trading and changed their position to support the bill. Under debate since spring of that same year, Smoot-Hawley was a bill introducing tariffs across a wide range of products. By October 29th the stock market had lost 1/3rd of its value. The bill wasn’t even law yet. It still had to go through the reconciliation process between the House and the Senate. Over the ensuing months the stock market jumped 8% when it seemed the bill might die, but then fell another 22% when the reconciliation ended up “successful” in the Spring of 1930, finally being signed into law of June of that same year.

We all know what happened next: The onset of the Great Depression, a time period of economic contraction that makes the Great Recession look like child’s play. GDP contracted by 26% over a three-year period, dropped further in 1933 before slowly, very slowly, starting to recover, not retaining the economic activity level of 1929 until 1936, a full seven years later. By contrast, the US economy contracted 3% over the single 2008 year, already showed growth in 2009, and recovered to the pre-recession levels by 2010.

The US was not the only country to experience a Great Depression. Ten different developed countries experienced massive stock market losses around the same time as the US in 1929/1930 and scores of countries dealt with economic contraction. One of the hardest hit was Germany, already dealing with massive inflation (Weimar Republic) and humiliation from the loss of WW 1.

I am not writing this today forecasting a war. In actuality, I am hoping against hope that no such thing happens. But I am aware that many of the events that led up to the two world wars are occurring again, though possibly in different shades of detail. Europe again has a fracturing free trade zone. The US again is becoming (has become?) protectionist. China’s economic foundation is crumbling. Stock markets are again near record highs. And it isn’t just the US, Europe, and China. Japan and Korea are at logger heads. Russia is saber rattling, and even as we speak conflict between Israel and Iran (though Iran proxies) is intensifying.

These events, compounded by government’s intense fear of recession and the social unrest a recession of any seriousness would bring, have created a situation in the finance markets not seen during the life of anyone still dealing in the finance markets. Maybe ever. To whit:

The entire German government bond curve is negative. Seriously. The German government has been able to borrow money on 30-year bonds at negative rates.

There is over $15 Trillion (with a T) of debt in the world trading at negative rates. That means that lenders are paying borrowers for the right to give them money.

There is over $1 Trillion in negative yielding corporate debt. Corporations are being paid to borrow money. I guess the lenders’ thought is if a company is being paid to borrow money then it should be impossible for that company to go under, thus ensuring the repayment of said financing.

In Denmark a commercial bank is offering loans at negative .5%. Home buyers are being paid to buy houses. Not even by the government, by a private bank.

This is all absurd. And I have no idea how it all turns out. Maybe it works out well. Maybe it doesn’t. But I do think the current commonly accepted way of investing is now old in the tooth. Successful investing will require nimble thinking, concise understanding of investment goals, and intestinal fortitude.

If I am right, we should buckle up. We will be in for a ride.

Happy Investing.

About the Author: Forrest Jinks is CEO of Altus Equity Group Inc and a licensed real estate broker. Forrest has decades of experience as principal in a variety of alternative investment segments including real estate (residential rehab, in-fill development, multi-family, office and retail), debt, and small business start-up (online marketing and site retail). He can be reached at


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