Meet a fund manager who saw the Great Depression, and learn his investment tips

In the 10 years after the crash of 1987, Glickenhaus was the top-ranked money manager in the US, and to this day he remains a market legend. He speaks exclusively about the markets, investing and the meaning of life.

Fund manager and stockbroker Seth Glickenhaus has seen it all before, right back to the Great Depression. Starting as a messenger boy for Salomon Brothers before the crash of 1929, he has been on Wall Street for most of the 20th century and today, at 94, still comes in each morning to the Manhattan offices of Glickenhaus & Co, where he is chief investment officer.

In the 10 years after the crash of 1987, Glickenhaus was the top-ranked money manager in the US, and to this day he remains a market legend. He speaks exclusively about the markets, investing and the meaning of life.

Seth Glickenhaus: All right sir, what do you want of me?

Michael Feller: How about the investment wisdom from your 94 years.

I’ll try to give it to you.

Today, the Dow is down another 400 points… 443. It’s been a very good trading range for the time being, but in a painful, slow way, in my opinion, we are making a very meaningful bottom.

For your information, 10 October, on an intra-day basis, the market hit 7800. It then went up two days ago to 9600. Today, in two days, it’s lost 1000 Dow points and it’s closed at 8695. So that gives you the picture since making the bottom.

Why the volatility you think?

There is a greater number of people on a global basis interested in the sharemarket and they follow the news much more closely than ever before, in the United States and abroad. In the United States we’ve had hedge funds pound the market, we’ve had mutual funds pound it, we’ve had the public pound it, and we’ve had foreigners pound it who were frightened silly.

There are six or seven major areas where we are in for a lot of trouble, but this has been so over-sold by the media. If you saw the headlines here, they were “Market Plummets!”, “Stock Market Makes New Low!”, “Lost 400 points!” – you know, that type of thing… “Unemployment Growing!”; and the public has just got frightened silly.

I have never seen such a complete fright of the economy and of the sharemarket. Therefore, to me the market accelerated the decline. We had stocks… for example, you had US Steel hit a high of $196 – it closed tonight at $32. I mean, the corrections have been monumentally great, much greater even than the averages indicate. The averages show from 14,000 down to 7800; that’s bad enough – you follow me?

But while we’ve had very steep corrections, could that also mean that the recovery could be likewise as sharp?

It certainly does. But first let me tell you the six or seven areas where it’s going down. Automobiles; there has to be a radical readjustment in the United States of the three main companies. Residential builders are suffering very obviously with the sub-prime mess we have. Airlines; because the price of oil, even though it’s at $US61, down from $US147, it’s hell in the skies, and fuel is killing them. They are reducing flights by 10%. The fourth are brokers in the business; many profit areas are gone. Banks; many profit areas gone. Municipalities; income tax and real estate taxes are going to be sharply reduced and their costs are going up. And there are many other areas. Media, for example; newspapers in the United States are soon going to be a total anachronism.

Perhaps that’s why they have such dramatic headlines…

I mean, people don’t read newspapers any more; they get their news from the internet – 40% of the public does. Advertising is going down, so radio is going to hurt too.

Now, the pluses of these… On a world basis, nations are throwing trillions at their economies, and therefore the recession in the United States and in Europe and other places is going to be more limited in time and in depth.

The second thing is that there’s about 30% of the world economy that is going to do better irrespective of a recession, namely China, India, the Middle East, Brazil and possibly a few other countries. Are you with me?

But they’re going to do less well than they did. China, instead of being up 12% may only be up 7% or 8%. India is going to be up 6% to 8% and so forth, so that will reduce the effects of the sell-off, of the recession.

Now, in addition, in the United States we don’t have a sharemarket, we have a market of stocks. When things hit normalcy, there are certain groups that will go up, some that remain the same more or less, and others that will go down. Now, we haven’t hit that point yet, but we’re beginning to hit it.

In addition, there’s a huge short position that’s developed, and a huge amount of cash on the sidelines, and when things get a little normalised or some better news comes in, that will come in. So, there you have the picture I have. Now, what else do you want to know? What it’s like compared to the Depression?

That was one of my next questions. People are comparing this financial crisis with the 1970s or even the 1930s. You worked through both, so what do you say about that?

What I have to say is this: In 1929 we had a very sharp break. In those days they bought stocks on the thinnest margins and the market got overboard and it broke.

There was a fellow by the name of Hoover (Herbert Hoover, Republican US president 1928–1933), who was the president and Andrew Mellon who was the Secretary of the Treasury. They had deep confidence that the country could straighten itself out, and at first Hoover kept making optimistic statements, denying that things were bad.

Don’t forget – in 1929 they didn’t have “the Depression”, they didn’t realise what was in front of them, and being public officials they weren’t really deep thinkers. So they kept denying that things were bad at first. Then eventually, when it continued, they set in motion a few things to help, but there wasn’t much substance to it.

When Roosevelt (Democrat Franklin D Roosevelt 1933–1945) came to power there was an unemployment rate of about 25%. He had to close the banks because the feeling was so bad, but then he began a bunch of things like the pension plans and so forth.

He also started, or took over, the Reconstruction Finance Corp, which Hoover had begun, to lend money to people in trouble, and also help them come out of that trouble. He also had a huge infrastructure program where he got great employment.

We’re going to have that in a few weeks too, because [US Speaker of the House Nancy] Pelosi is promising to bring that in and doubtless, in this climate, the Congress will go along. Even this cretin we have for a President, a guy by the name of Bush, will sign it. He won’t veto it this trip; he doesn’t want to go out with a veto – you follow me?

Do you think construction and infrastructure companies will do quite well?

Yes, I think there’s going to be a lot of construction. You’re going to get bridges built and reconstructed, you’re going to get roads built and reconstructed, and you’re going to get buildings, which have been neglected. In the United States, the politicians always neglect the infrastructure. It’s the last thing they’re interested in and usually they don’t have enough money, so they disregard it.

The Democrats finally are coming out of their long slumber and are going to do something constructive.

The Australian company Macquarie Group funds a lot of infrastructure projects in the United States. Do you see that getting a lot more projects in the near future?

I can’t answer that. I’m not sure how the contracts will be awarded, but I think they certainly will be protectionist, in the sense that they will favour American companies, though where foreign companies are more than competitive, they’ll probably be used.

Was the current crisis a result of Wall Street’s greed or America’s greed?

It was a result of everybody trying to get rich, and here is the key thing – a total disregard of what the downside was when they made commitments. So they leveraged up to the hilt, confident that everything was going to go up. So the fact you had a thin margin didn’t matter. They acted as if they were 22-year-old boys who could afford to lose their stake because they had their whole future in front of them – you follow me?

But instead, they had the public’s money, and these brokerage shops went crazy.

Was that the same type of mood that precipitated the crash of ’29? That type of follow-the-leader?

Sure it did! Of course it did! People were making money, the markets were going up and you could buy on a shoestring, so the greater percentage of the public got carried in. Over-leverage – very similar.

But don’t forget, there’s another factor that’s being disregarded. The only thing that is historically true is that there are cycles. In other words, we’ve had a 20-year boom in the United States here and business for 20-odd years went up, up and up. People got lulled into the sense that homes could never go down in price.

You see, that was the feeling that when they bought a home, it’s going to be 10%, 15% or 20% higher in a year or two. I mean… follow the leader; everybody believed… it happened for five years, why wouldn’t it happen for six? You get the idea?

I mean, that’s what brought it around. It was a desire to make more money and it was the fact that they disregarded the downside risk, that they were coming in at high prices with a very thin margin, and brokerage shops were doing the same thing. Moody’s rated many of these mortgage packages triple A!

What brought about the bad years of the 1930s?

Now, let me explain what happened in the 1930s. When Roosevelt came in, he towered above any other public official who has ever lived in any country. He was not academically brilliant, but as a practical matter he understood things that other people didn’t understand. He pulled this country out of trouble in a way that he’s never got credit for, by programs, and he realised the necessity for them.

He was such a great salesman on the radio and he’d have these fireside chats to persuade the people; even people who didn’t quite understand what he was saying. They would say, “You know, this man is very sincere, and even though I don’t agree with him completely, he really knows what he’s doing”. He was elected president four times in a democracy. He fostered a great deal of confidence and the market that made a low in the Dow of 40, both in ’31 and ’32, got much higher in ’37 when it broke again before the war.

There’s a myth spread by the Republicans that the United States didn’t come out the Depression until the war (the second world war 1939–1945). That’s true in a sense; we didn’t come back to full capacity, but Roosevelt in the ‘30s built tremendous improvements and a lot of hope. Today, all we have is fear, fear, fear. I don’t sleep nights. In fact, that’s why we’re at a low because we’re selling dollar bills for 50 cents.

What was it like working in the Great Depression?

[In the crash] I was a 15-year-old messenger. The one thing I learnt was after the first route they sent me out on. I delivered whatever it was and came back, and the messengers yelled at me: “You did that much too quickly! Don’t you know you’ve got to stroll!” I’ll never forget that. I was horrified that they prided themselves on how slowly they did their work. That’s the only thing I learned as a messenger boy.

Later in 1934, I was hired by Salomon Brothers, after I went to Harvard from 1930 to 1934. In 1934 I started learning about things, and I realised how wonderful Roosevelt was. The [Dow Jones] averages were about 40 and they went up probably as high as between 80 and 100 – I don’t know the exact figure – in 1937. Things straightened out, in the same way that we now have a new bull market beginning, despite the last two days. In other words, they’re just dumping and dumping, and finally they’ll be through with the selling and these great values are going to manifest themselves.

Many people would think that being a broker in the Great Depression of the 1930s would have been a tough gig, but it sounds like it was a good time to be there.

It was an excellent time, because the market had broken so quickly. See, people don’t realise it; bear markets occur in a great hurry. It used to take a year or two, but this time it’s taken a matter of months because the communication is so much better.

Is now a good time to be an investor?

The truth is always the opposite of the conventional wisdom, you know that.

You have, however, said before that if you were a young man today, you would be moving to China.

You’re exactly right. You’re quoting me. I said to my wife, “If I were a young man I’d move to China”. I’ve said that again and again. That’s where the real opportunities are. China will be the dominant nation both in population and in production, in capacity and I only hope that their political system becomes more rational and observes rights and civil liberties and so forth. They’ll come to that eventually.

Now, just one final question. At the age of 94, many people would have a tough time concentrating on a round of bridge. What keeps you going for eight or nine hours a day, every day?

The fact that I love my business so much, and I have a great aptitude for it. I have other hobbies, many other hobbies, which are beyond the purview of this interview to go into, but much as I like them, I prefer helping people make money. We manage money for other people, and I have had a great record. I love the work, that’s why I keep doing it and it keeps me young and vigorous.

This article first appeared in Eureka Report


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