When I first went down to Wall Street in the mid 1970’s as a
security analyst, the financial district was a dreary place. Indeed, all of New York
was in decline. Neighborhoods were
unsafe, Central Park uninhabitable after dark, graffiti
was everywhere, but particularly in the un-air conditioned and broken-down
subways. Crime was a way of life. Upscale professionals lived in the suburbs,
commuted to work, and left town as soon as possible. You could roll a bowling ball down Wall
Street at 4:20 p.m. and not hit
anyone. It was a ghost town within
minutes after the markets closed.
The stock market had been in the doldrums for eight years
and would remain there for another seven.
There was no financial news on radio or TV, much less entire channels
devoted to them. The business section of
the New York Times was one page. The
Wall Street Journal came in only one section.
A securities analyst was not the profession of choice in the
mid 1970’s. In fact, when I introduced
myself as an analyst to strangers at loft parties that were the rage in the
seventies, it was presumed I meant a psychoanalyst. When I would clarify by mentioning I was a
SECURITIES analyst of a bank trust department, most people thought my job was
to prevent a bank robbery. Investigative
journalism was the hot profession of the time, followed closely by
filmmaker.
Columbus Avenue
was a rundown collection of second hand furniture stores posing as antique
shops in the mid 1970’s. Carnegie Hill
wasn’t a neighborhood yet, and there wasn’t a decent restaurant or shop within
ten blocks of it. Nobody lived in
Tribecca, now the most expensive neighborhood in Manhattan. Harlem was strictly
off limits to whites. Nobody had heard
of Williamsburg. SoHo was just raising
its head and nobody except the small community of artists who lived there
illegally, because they couldn’t afford to live anywhere else, understood the
appeal. The World
Trade Center,
derided as a huge folly, had just gone up and was largely uninhabited. New York
State took up most of the office
space in one of the two buildings just to save face. The South Street Seaport had two restaurants,
Sweet’s and Sloppy Joe’s which served fresh fish and huge desserts, but that was
more or less the culinary choices for Wall Streeters at the time, there being
few other restaurants in the financial district, and none of them any good.
The Upper East Side, the place to be
in the mid 1970’s, ended at 86th Street. Nobody you would know lived north of
that. The West Side
was considered dull and dangerous. There
were no first run movie houses on the Upper West Side. Movies got to the West Side
about the same time that they got to Iowa. Times Square was a
dump. Where Disney stands today stood
hookers and pimps and peek shows.
New York City
itself was functionally bankrupt and a newly created state agency took over its
finances. Worried about rising real
estate taxes, a friend sold her one bedroom apartment on Park Avenue in the eighties
(streets not years) for $27,000.
On Wall Street, the Dow Jones Industrial Average stood below
700. Interest rates and inflation were
rising rapidly, and price earnings ratios were heading south. These trends would continue until August of
1982 when the DJIA hit 580.
In August of 1982, I was standing in the lobby of an oil
service company I was visiting, as a securities analyst, in Orange
County, California. It was 1:00
p.m., 4:00 p.m. eastern time, and the
market had just closed. I checked out
the closing prices on the Quotron machine the company had in its lobby. To my great surprise the market had closed up
by more than 20 points. This was big. I had seen a few twenty point moves over the
past seven years, but they were rare. More rare than 20 million share days, though there weren’t
many of those, either.
More astonishing was the market the next day. Still in California
when I checked it, I was shaken to see that the market had climbed another
twenty plus points. This was unprecedented
and signaled something entirely new and REALLY big. You could sense it immediately. Although I couldn’t have known it at the
time, the Reagan Revolution was underway.
After a tortuous eighteen months on the job, as things got
progressively worse, rather than better, in both the economy and the markets,
the President and his policies were finally being vindicated. The combination of tax cuts, supply side
incentives, boosted defense spending and tight money worked. Did it ever! The financial community was getting it, at
last. The Dow Jones average blew through
the 1000 level, a level last achieved fourteen years earlier, and never looked
back. Within months the average topped 2,000. Today it tops 10,000, up by a factor of
almost twenty times, in the twenty-two years that followed.
No industry benefited as much from the Reagan revolution as
the financial industry, and no city more than New
York City. How
much does New York City owe to the
Gipper? Consider this. Since the mid 1970’s, New
York City has added 176,000 jobs. Almost all of that increase has come from the
financial services and related industries.
In percentage terms the figures are even more startling. While the manufacturing, retailing and other
sectors declined, employment in the financial and related industries
exploded. For the most part these were
high paying jobs, adding significantly and disproportionately to the tax rolls.
New York
thrived in the 1980’s and the 1990’s propelled by the growth of the financial
industry. Neighborhoods revived. New trendy neighborhoods surfaced. Harlem, multi-cultural
now, is one of them. Young
professionals stopped moving to the suburbs and moved to Park Avenue
instead. Private schools flourished
again, as affluent families remained in the cities. The Central Park Conservancy was created by
successful financiers and now contributes more than 95% of the funds for
operating the park. Well lit and safe
once more, the park is filled with unaccompanied and unafraid young women
walking their dogs late into the night.
The subways, clean and well air conditioned, are the
preferred mode of travel for most New Yorkers.
The performing arts, the museums, Broadway, all the things that visitors
think of when they hear the words “New York”
are well funded and bustling. Nobody has
to explain what a securities analyst does at cocktail parties anymore, although
hedge fund manager has replaced it as profession of choice. Nobody has to explain what a hedge fund
manager is either, although they probably should.
Ronald Reagan does not deserve all the credit for New
York’s remarkable renaissance over the past thirty
years. New Yorkers themselves, including
some of their outstanding leaders, warrant much of the praise. And, of course, New
York is no nirvana.
There are still many problems to be solved and improvements to be
made. But, New
York, once the laughing stock of the nation (remember
“Drop Dead NY” and “Let them freeze in the dark”) is now the safest big city in
the U.S.
(imagine that!) and surely the most successful.
Few of its many accomplishments would have been possible absent a
thriving financial services industry.
And although, as night follows day, a bull market would have eventually
followed the long painful bear market that stretched from the late 1960’s into
the 1980’s, it would have been a timid bull, at best, without the radical
change in policies enacted under Ronald Reagan.
The outpouring of emotion and goodwill towards President Reagan and the
Reagan years going on throughout America
these past few days is ample evidence of the country’s affections. Even his erstwhile political enemies are
eager to give the former President his due.
But here in Gotham, we should hold a ticker tape
parade through the canyons of Wall Street to show our gratitude. New Yorkers, we are all Reaganites now.
Robert Kleinschmidt
June 10, 2004
© Tocqueville Asset Management L.P.
The information contained herein has been obtained
from sources believed to be reliable and to the best of our knowledge is
complete. The validity and completeness however cannot be guaranteed by
Tocqueville Asset Management. Nothing
herein constitutes investment or any other advice and should not be relied upon
as such. This document has been
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The
opinions expressed in this document are those of Tocqueville Asset Management
as of the date of the writing and are subject to change.
New York, NY 10019