We must confess, however, that things were even worse than we thought. Those declines are in nominal terms, meaning they do not take into account the massive inflation we’ve experienced in the first half of this year. Stocks were falling in dollars terms, but those dollars themselves were declining in value. As we’ve pointed out again and again, inflation introduces chaos into financial calculations that can often conceal deep points of economic stress.
Michael Hartnett, the chief investment strategist at Bank of America Securities, ran the inflation-adjusted numbers in a note for clients this morning. He found that this has been the worst start of the year for the S&P since 1872, the year Jesse James and Cole Younger led their gang to rob a bank in Columbia, Kentucky, and ended up shooting a teller who refused to open the vault.
At the time, the country was led by President Ulysses S. Grant, a military hero who was not exactly an ace at economic policy. The following year, the country fell into what was then known as the “Great Depression.” This severe downturn lasted from 1873 to 1879. At 65 months, it is still to this day the longest-lasting contraction identified by the National Bureau of Economic Research, outlasting the 43-month contraction of the Great Depression of the 1930s. Ten states, scores of railroads, hundreds of banks, and thousands of businesses went bankrupt during the 1870s Great Depression.