“After all, the chief business of the American people is business. They are profoundly concerned with producing, buying, selling, investing, and prospering in the world."
- Calvin Coolidge, 30th President of the United States
What if we asked Calvin Coolidge - old silent Cal - with his early 20th Century common sense and puritan ethic, for his take on current affairs?
What would he say about inflation? About risk-taking in today’s environment?
First of all, I think he would find it obvious that the combination of large budget deficits, trade deficits, and the Federal Reserve’s stated commitment to keep interest rates low makes the steady erosion of the purchasing power of the U.S. dollar inevitable.
He would say that this will be very bad for the American worker, who will feel the double squeeze of both stagnant wages and a shrinking dollar.
He would probably also say that this coming inflation will be extremely challenging for businesses with little pricing power, and ones trapped in downward cycles of commoditization and relentless margin pressures.
But Cal - living in a time of opportunism and watching fortunes being made all around him like never before in history – would probably also see that for the vast majority of US businesses that are services and exports based, inflationary conditions can be advantageous.
Why? Because the best managed of them will be able to control their input costs (labor, rents) while adjusting prices upward.
How about if we asked old Cal about the stock market?
Remember, he presided over one of the greatest bull markets in history, where stock prices rose over 380% during his time in office.
I think he would channel the famous “outrunning the bear” parable:
Two campers are walking through the forest when suddenly they encounter a grizzly bear. The bear rears up on his hind legs and lets out a terrifying roar. Both campers are frozen in their tracks.
The first camper whispers, "I'm sure glad I wore my running shoes today.” “It doesn't matter what kind of running shoes you're wearing you're not going to outrun that bear,” replies the second.
“I don't have to outrun the bear. I just have to outrun you,” he answers.
This “last man standing” wisdom would suggest to Cal that stocks will do well simply because the various alternatives are so much less attractive.
Starting with cash and treasuries, Cal would probably see that they both suffer from the double whammy of negative real return and serious principal risk as at anytime the issuer - the US government - can just get up and print away their value (unlike in Cal’s time, by the way).
How about gold? How would Calvin Coolidge - almost the comically stereotypical crotchety old-timer - view gold as an actual investment?
Well, he would probably say that its recent historic price run is directly related to the sheer terror that a wide swath of the public has toward their government’s monetary policies.
But Cal’s sturdy early 20th Century optimism would frown on the defeatism and pessimism that investing in gold represents.
No, as he believed above all that the proper business of America was business, he would in all likelihood see the business of investing as mostly involving stocks and bonds of operating companies.
Of the two, he probably would be partial to stocks. Remember, he presided over one of the great bull markets in American history.
And as a sturdy and self-confident New Englander of his age, he might say that if you're going to invest, then invest and take your swings for the 2, 3, 5, and 10 bagger-potential and beyond that only stocks provide.
So if he lived in our present age, would Calvin Coolidge – a man of the early 20th Century - think that we have a mostly bumpy and discouraging road ahead?
Silent old Cal would see the great opportunities abounding in our technological and global age.
And he would probably mostly counsel for government to just leave businessmen and women alone to pursue and profit from it.