We believe that Billy Joel is perhaps the most preeminent singer/songwriter of the U.S. baby-boom generation. Art, like Billy Joel’s music, has a tendency to mirror culture and economics. Thanks to his recent tour in the U.S., we were reminded of how four of Billy’s greatest hits speak to our current circumstances in the stock market and give incredible advice about how to behave as investors over the next ten years.
“Allentown” 1982
In 1982, the U.S. was wrenching from a deep recession with unemployment hitting a high of 10.8%. Manufacturing jobs were being lost to cheaper labor in other countries as big labor priced itself out of world market competitiveness. They asked for wage increases to match inflation and forgot that folks in foreign countries could do the work cheaper. Billy wrote and sang:
“Well we’re living here in Allentown
And they’re closing all the factories down
Out in Bethlehem they’re killing time
Filling out forms
Standing in line”
The investing crowd thought a reduction in emphasis on manufacturing in the U.S. would permanently hurt GDP growth. History shows that household formation led by baby boomers, and the houses and cars which they bought, overwhelmed the economy from 1982 all the way to the late 1990’s. This is a good picture today as the media and major political figures argue that a shrinking middle class, off-shoring of manufacturing jobs and economic inequality mean a bleak future for GDP growth in America. It is our opinion that the 86 million Americans between 21 and 39 years of age are preparing to overwhelm the economy over the next ten years in a similar way.
“We Didn’t Start the Fire” 1989
“We didn’t start the fire
It was always burning
Since the world’s been turning
We didn’t start the fire
No we didn’t light it
But we tried to fight it”
For my 36th consecutive year in the investment business, investors are using societal, political and cultural problems as a reason to not invest in quality common stocks. Billy did a great job of reminding everyone that external problems “were always burning, since the world was turning.” On a recent business trip to Europe, U.S. presidential politics was what folks wanted to talk with us about. There has never been a good time for investors to get distracted by Marilyn Monroe, Richard Nixon and military conflicts like the Bay of Pigs and be pulled away from strong companies at attractive prices.
“Pressure” 1982
“But you will come to a place
Where the only thing you feel
Are loaded guns in your face
And you’ll have to deal with
Pressure”