The late 19th century was one of the fastest developing periods in the history of the world… particularly so in the United States.
During the lead-up to the Civil War, American entrepreneurism caused entire new industries to pop up right and left.
The coal mining industry grew out of the need to supply fuel for steam engines and steel plants.
And the period culminated with the development of the automobile in 1885.
Each invention was essentially a wide-open blue sky that created multi-decade booms rampant with speculators.
But the combination of innovation, ruthless efficiency, and a lack of regulation led to each of these new industries being controlled by a select few.
Rich Uncle Pennybags
The handful of entrepreneurs that emerged as top dogs in this era were all names you know – Andrew Carnegie in steel, John D. Rockefeller in oil, Cornelius Vanderbilt in steam and rail shipping – all with some degree of assistance from J.P. Morgan and Andrew Mellon in finance.
Each generated massive amounts of wealth for themselves as their respective industries took off. That wealth was often generated through leveraging scale to acquire rival competitors rather than directly compete.
In Dan Yergin’s “The Prize” – the most comprehensive history of the oil industry ever written, he says about Rockefeller, “the objective of his audacious and daring battle plan was, in his words, to end ‘that cut-throat policy of making no profits.’”
Spoiler alert: he succeeded.
Combined, Rockefeller and the others amassed a personal net worth of over US$750 billion in today’s dollars.
But in every transaction, there is always a counter-party. More often than not, the counter-parties are the aggregate of the middle and lower classes.
And the dynamic that arises when monopolies and duopolies conspire with one another to fix prices – or more to Rockefeller’s point, raise them – is one that I’m sure is all too familiar to readers of these pages.
I’m talking, of course, about inflation.
But more specifically, I’m talking about how inflationary and monopolistic business practices give rise to massive wealth inequality.
And when that is allowed to continue unabated for decades on end – as it did during the Gilded Age with these Robber Barons of industry – history has shown us time and time again that social unrest is the inevitable result.
And one of the indicators produced by political polarization in the US is a disconnection between Electoral College and Popular Vote results.
It just so happens, that was the exact result of not one, but two elections over the span of 14 years during the Gilded Age.
And if that doesn’t give you some pause about current times… well, let me be the first to tell you that it should.
Gilded Age II: Binary Edition
The truth is that the US has been on a collision course with social unrest since former Fed Chairman Alan Greenspan began to lower interest rates in the wake of the 1987 stock market crash – a tradition continued by each of his successors.
Source: Bloomberg, FRED
And you can see when I overlay the Dow Jones Index and the S&P 500, that those periods of low interest rates absolutely do produce periods of growth in the stock market.
Source: Bloomberg, FRED
But the problem here is that in a low interest rate environment, the only way to build wealth and traverse class – to go from lower to middle, and from middle to upper – is to participate in these capital markets.
And unfortunately for the US, almost half the country doesn’t own stocks.
So the comparatively rich have been getting comparatively richer over the last 35 years, while the comparatively poor have been left in the dust.
I’m sure it’s no surprise to where the most wealth has been built these last few decades. The answer is as plain as the screen I’m staring at right now.
The technology industry.
Perhaps inadvertently, the United States has managed to build yet another series of interconnected, under-regulated monopolies a full 3-4 generations removed from the last ones.
In the late 1800’s, we had one or two businesses that dominated the burgeoning industrialized nation in oil, steel, finance, and shipping.
In 2020, we have one company that dominates work, one company that dominates search, one company that dominates social media, one company that dominates devices, and one company that dominates retail, shipping, cloud, and food… oh yeah, and it also owns a newspaper.
And sitting at the head of each one are the Robber Barons of this New Gilded Age.
So what we have to keep in mind now is that the net result of the Robber Barons’ dominance in the Gilded Age was the Sherman Antitrust Act of 1890, which ultimately caused the breakup of Rockefeller’s Standard Oil into 7 different companies.
Source: Visual Capitalist
And a similar shakeup appears to be in the works, as the Justice Department reportedly plans to file an antitrust suit against Google as soon as this month.
Moreover, that is likely to proceed regardless of who wins the upcoming election… and it’s unlikely to be the only one.
Volatility also spiked, and a correction seems justifiable after this ill-deserved recovery from the March COVID-driven lows.
And as we learned at that time, any selloff will likely be accompanied by a dash to cash – benefitting our stake in Invesco DB US Dollar Index Bullish Fund (NYSEArca: UUP). Just in case, let’s pick up our final ¼ stake here, with the eye to liquidate if there’s no move.
There’s also a chance that gold might sell off along with other asset classes, so it’s something to monitor.
But in no way am I ready to “break up” with the yellow metal just yet… that’s the only sector right now where I’m still very much “pro-trust”.
All the best,