People are worried about volatile markets. At Mullooly Asset, we’ve fielded countless phone calls from investors worried about their investments and concerned about the volatile markets in general.
And most inbound phone calls to us begin with, “So, we’ve never been through anything like this in history…”
Wait. Are you sure?
Perhaps we have been through episodes like this before.
I am just wrapping up a book with stories about people rioting and looting businesses. This book also included tales of people publicly protesting government programs and shortages.
This same book also contained a story about “packing the United States Supreme Court.”
And, amazingly, this book also contains a story about a politician who was declared the winner of his election to the Senate. However, a few days later the decision was overturned when all the votes were counted.
Was it a book about the year 2020?
No. It’s a book chronicling events from eighty years ago!
The book is titled “The Path To Power” and tells the story of Lyndon B. Johnson.
In this first of four books about Johnson, author Robert Caro begin the story of the Johnson family settling in West Texas (“Hill Country”) in the mid-1800’s, right up through Johnson’s campaign for the Senate in 1941.
While “The Path To Power” is a story about one of the prominent political names in the past century, it’s also about events which can lead to turmoil in society and volatile markets.
Protests add to Volatility
In 1931, folks began to realize the volatile markets not just on Wall Street, but in commodity markets were having an impact back home. And following the stock market crash in 1929, local economies were not recovering. And the unfolding economic problems were much longer-lasting than initially perceived.
Jobs were not returning. And times were hard. No one had money. The government had no programs, no money, no assistance to offer. Once proud men and families were left homeless and begging. Children were dropping out of school to work on family farms. Riots, protests and general unrest began taking place on a fairly regular basis in Texas (and elsewhere around the country) throughout 1931 and 1932.
In 1932, Franklin Roosevelt became the first Democrat in 80 years to win the presidency by a majority vote, instead of merely a plurality. On Capitol Hill, House Democrats gained a whopping 97 seats for a nearly three-to-one margin over the Republicans (313 Democrats, 117 Republicans). In the Senate, Democrats picked up 12 seats.
It didn’t end there. In 1934, Democrats picked up 10 more Senate seats for a total of 69. In 1936 that number rose to 76. Over in the House, the Democrats surged to 322 to 103 Republicans, but there were also 3 from the Farmer-Labor Party and 7 from the Progressive Party who often voted Democratic. Republicans held less than 25% of the House by 1936.
Supreme Court Packing can add to Volatility
In 1937, Lyndon Johnson, just 29 years old, ran for Congress in a special election. Johnson’s backers insisted he piggyback on the Roosevelt platform as he began to campaign. The only potential problem was after winning reelection convincingly in 1936, Roosevelt was adamant about packing the Supreme Court in 1937. Roosevelt planned to add six new justices to the Supreme Court.
Similar to some themes heard in 2020, President Roosevelt issued a proposal in February 1937 to provide retirement at full pay for all members of the court over 70. If a justice refused to retire, an “assistant” with full voting rights was to be appointed, thus ensuring Roosevelt a liberal majority.
While Johnson won his seat in the House, most Republicans and many Democrats in Congress opposed his so-called “court-packing” plan. In July 1937, the Senate struck down the plan by a vote of 70 to 22. We did not hear much about “court-packing” again until September, 2020.
An Overturned Election Could Spur Volatile Markets
In 1941, in a special election for a Senate seat, thirty candidates originally threw their hats in the ring. But the votes essentially came down to two people: 32 year old Congressman Lyndon Johnson and Texas Governor “Pappy” Lee O’Daniel.
O’Daniel was a successful businessman, who later became a very popular entertainer. O’Daniel parlayed his popularity into becoming governor. “As one contemporary said, …you couldn’t find anyone who voted for him, but he always won the election.”
On election night, Johnson’s 24 year-old campaign manager, John Connally, asked election officials for their vote tallies. Connally himself had a long career including Secretary of the Navy, Governor of Texas and Secretary of the Treasury, long after managing Johnson’s 1941 campaign.
With 96 percent of the precincts reporting, Johnson was ahead by five thousand votes. Newspapers announced the win for Johnson.
But releasing the vote tallies was a fatal error for Johnson’s campaign. These details gave O’Daniel’s campaign team (and other special interest groups in Texas) the critical information needed to come up with enough “late counted votes” the very next day to beat Johnson by 1311 votes. This was hotly contested for days after the special election date, but eventually Johnson accepted the results.
Can you imagine what kind of volatile markets we might see with a contested election?
Is this something you should be concerned about?
The volatile markets and news headlines we have been experiencing in 2020 may be the first time for some of us. But these kinds of news headlines and stories have happened before.
For the record, we fully expect markets will remain volatile between late October and year-end. For investors (not traders), these weeks of market volatility should not be a reason to “rip up the script” or change your approach with your investments. We’ve put together several videos regarding the markets, the election and volatility which you can find here. Our latest comment on the markets is also found here.
Your emotional strength will be tested. And your patience will be rewarded.
Other sources:
https://www.texasmonthly.com/articles/texas-history-101-8/
https://www.thestoryoftexas.com/discover/artifacts/lyndon-johnson-of-blanco-county