We all know about resets.
We reset our phones, tablets, laptops and other devices.
To reset, devices power down and restart. In theory, resets make the device better. It should free up memory or install an upgrade.
It’s not just our phones. Economies reset too.
Not as often as our phones. But resets occur at some level all the time.
At a small level, styles reset every season. Retailers ahead of changing tastes offer profitable trades. Retailers that don’t keep up can fail.
At a larger level, a new technology could reset an entire economy.
The Great American Reset Is Here
Right now, we’re starting a Great American Reset. It’s a reset starting just like the reset that kicked off the Roaring ‘20s.
The Roaring ‘20s are remembered for good times and a stock market bubble followed by the Great Depression. Less remembered is the fact that a depression kicked off the decade.
From 1919 to 1921, economists estimate gross domestic product (GDP) contracted up to 6.9%. For comparison, GDP fell 5.1% in the recession that ended in 2009.
The Dow Jones Industrial Average fell almost 47% in the depression of 1920. After bottoming in 1921, the Dow moved almost straight up. The next decline of 20% or more occurred in 1929:
The 1920s Reset Changed Everything
The depression of 1920 reset America.
A reset was needed. Conditions in 1920 had to change.
To finance World War I, the Federal Reserve kept interest rates low. Industrial output supported the war effort.
After the war, the Fed allowed rates to rise. Factories began making products to meet pent-up consumer demand.
During the long bull market of the 1920s, the benefits of the reset were obvious.
Among many changes to everyday life, the number of homes with electricity doubled. This allowed for new technologies.
Radios were unknown in 1920 and were in more than half of all households by the end of the decade.
Buy the Reset’s Winners Now
In hindsight, the reset at the start of the decade made life better.
At the time, it was painful. One economist estimates unemployment rose from under 2% to almost 12% during the reset.
Within two years, unemployment was back at about 2%.
Right now, the economy is resetting. We are in the first stage, with high unemployment and an economy in contraction.
Smart investors should be looking ahead. They should be buying the sectors that will be winners after the contraction ends.
Ian King’s Great American Reset presentation has more details.
Editor, Peak Velocity Trader