Remembering 41. As the Nation and the financial markets pause to mourn the loss of President George H. W. Bush, I thought this would be a good day to reflect on his presidency from the perspective of the financial markets. Bush certainly inherited his fair share of challenges on both the political and economic stage but he managed to lead the Nation to a more stable era, all the while demonstrating his trademark attributes of conscience and reason. At the time, Bush’s Presidency was actually considered unremarkable but looking back 25 years many have a more positive view. In addition to the challenges that he faced in the rapidly changing geopolitical climate, he had to serve in the shadow of the larger than life President Ronald Reagan. According to a 2014 survey which ranked US presidents, Bush came in at number 17 out of the 43 that served at the time. To add some perspective, President Obama was ranked 18 just below him and President Kennedy at 14, just a few above. The same survey named him the most underrated President.
Let’s turn the clock back and take a closer look. George H. W. Bush won his bid to be the 41st President of the United States in a landslide victory over Democrat Michael Dukakis and he took office on January 20, 1989. He entered office just as the Soviet Union was on the brink of collapse after his predecessor and former boss Ronald Reagan ushered in a period of cold war easing. Within six months of his presidency, a crisis emerged in Panama as military ruler Manual Noriega refused to cede the presidency to a democratically elected leader. As tensions escalated, Bush ordered military action to stabilize Panama in order to protect the vital Panama canal. The military action (Operation Just Cause) lasted less than a month and ended in Noriega’s surrender. During the same year, the eastern block countries of the Soviet Union began to enact reforms making moves away from Moscow. In November, East Germany opened the Berlin Wall to West Germany and the path to reunification began. Eastern block countries continued to fight for independence with the aid and support of the Bush administration. In December of 1991, the Soviet Union was officially dissolved and the then leader of Russia Boris Yeltsin alongside President Bush declared a friendship between the nations ushering a new era. In the summer of 1990, Iraq invaded Kuwait, which led to economic sanctions and ultimately, Operation Deseret Storm, which began in January of 1991. The operation ended in late February when the invading Iraqi forces were pushed out of Kuwait. The invasion caused crude oil prices to go from around $15 a barrel to around $41 a barrel ($20 was considered high during those times), a move which has been linked to the recession that followed. Turning over to China, 1989 marked a year of student protests against communist rule. The protests reached their zenith with the Tiananmen Square Massacre in which up to 10,000 civilians were killed by military forces. All of this occurred over the first 2 years of Bush’s presidency. The remainder of his presidency was marked by diplomacy as he carefully navigated the rebuilding of Europe, the re-unification of Germany, the negotiation of the now-infamous-for-no-real-reason NAFTA, a recession, the hight of the Savings and Loan Crisis (more than 700 banks were shut down by the RTC during that period), and a Democratic congress. Wow, that’s a lot. Now let’s take a look at the numbers. The Gross Domestic Product (GDP) rose from $5.5 trillion to $6.7 trillion with a recession that lasted from late 1990 to early 1991. The GDP is now $20 trillion! Annual inflation reached a high 6.3% and it has not been as high since. The current CPI is at 2.27%, but it did get to 14.7% prior in 1880 during the Carter administration. Fed Funds have been in the news a lot these days (more on that tomorrow) and they got as high as 9.9% in the beginning of his presidency and ended at 2.86% by the end of his presidency. Fed Funds are currently 2.2% but reached 19.64% in 1980, for perspective. Now on to another topic that has been in the news a lot recently, the treasury yield curve. During Bush’s White House tenure the 2 year 10 year yield curve inverted 5 times before the economy entered a recession in 2Q 1990. The final inversion took place 3 months prior and reached -10 basis points. The 2/10 yield curve closed around +11.6 basis points, which is the lowest it has been since mid 2007. During Bush’s presidency, 30 year fixed mortgage rates were as high as 11.2% and as low as 8.14% versus 4.81% today. The Federal Deficit was very much on the minds of the nation at the time as Bush started his presidency with a federal deficit of $152 billion. Later in his presidency the deficit grew to $290 billion, which led him to make a comprise with the Democratic congress as income taxes were raised breaking his now infamous campaign promise in which he said, “Read my lips, no new taxes”. He chose the compromise to raise income taxes over large budget cuts. Today’s federal deficit is at $778 billion. What about the stock market? The Dow Jones Industrial average rose +43% during Bush’s tenure ending at 3301. Yesterday’s session saw the Dow close at 25027 down -799 points, which would have been a loss of 24% during the Bush era. Remember that when Bush took office, Black Monday (October 19, 1987) in which the Dow fell 508 points for a loss of -22.61% was fresh on the minds of traders. Apple was the only FANG around at the time and the high flyer tech stock was Microsoft and if you bought 1 share of MSFT as Bush was entering office it would have cost you a hefty $53.28. If you hung on to the stock it would be worth $15,626 today and you would have gotten a +29,229% return on your investment. Apple computer started Bush’s presidency at $1.44 and ended it at $2.14. Apple closed yesterday’s session out at $176.69, down $8.13. From a financial perspective there are many differences and we have covered lots of ground since President H. W. Bush served as president. Despite all of the geopolitical and economic risks he encountered, he managed to usher the country through a recession, leaving office with a higher stock market and lower interest rates, with inflation under control and a shrinking deficit. Bill Clinton inherited a healthy economy upon which stocks grew another +228% during his time in office. Most importantly George H. W. Bush will be remembered as an even-keeled, good-natured, and thoughtful President who was able to unite a nation during some very difficult times. He dedicated his life to the service of our country and most importantly his family.