Why the 1970s Became the Era of U.S. Pessimism

October may not be the cruelest month for investors -- based on the averages, that's September. But when Wall Street stumbles at this point of the year, it stumbles extra hard. And that's why Alison Southwick and Robert Brokamp picked October for a four-part series on the history of market crashes in the United States.

In this podcast, guest and Former Fool Morgan Housel leads the discussion as they reflect on two major economic tumbles: the long downturn of the 1970s and 1987's Black Monday. In the 1970s, they note, stocks were a poor place to put your money -- even in the periods when they managed to eke out gains, they were being drowned by double-digit inflation. And it wasn't just an economically troubled time; it felt like nothing was going right for the country in general.

A full transcript follows the video.

This video was recorded on Oct. 10, 2017.

Robert Brokamp: I think one of the important historical aspects of this, or the consequence, was that people basically gave up on stocks. They started moving into gold and real estate, and saying basically that stocks were for suckers. Famously, in 1979, [BusinessWeek] had an issue and the cover was "The Death of Equities," saying no one invests in stocks anymore. Of course, that point would have been the best time to invest in stocks, but people had given up. And why would you invest in a risky asset when you can go to the bank and get a CD that was yielding 12% to 13%?

Morgan Housel: Right.

Alison Southwick: Wow! That's crazy.

Housel: But the CD that was yielding 12% was during a time when inflation was 10% to 11%. It was a pretty crazy time all around, and even though I obviously wasn't an investor or even a person back then, when you read about the period and read what people were writing at the time, it wasn't just pessimism at the moment, but a sense of long-term pessimism, where it was like, I think the U.S. as the world's leading economy was over. Very similar to what you saw in 2008-2009, where people really saw it as a paradigm shift back to something else.

Interesting, too, this is around the period where both Japan and Germany had effectively rebuilt themselves from World War II and their economies started not just growing but surging, and particularly Japan. Starting in the late '70s and early '80s, Japan was looking like it was going to become the world's dominant economy by leaps and bounds. In economic growth, and technology and innovation, it was really running laps around the U.S. at that point, which added to the sense of pessimism in the United States that we were falling behind.

Brokamp: Robert Shiller has used the term "animal spirits," so you look at the '70s in terms of the zeitgeist of the time. You had Watergate. You had the Vietnam War. You had OPEC and the oil crisis, which made us feel like we were a little powerless against these other countries. I was around for the 1970s. I was born in 1969, and what I remember was the long gas lines, and I remember that my first car was a 1977 Lincoln Continental, and it got 6 miles to the gallon.

Housel: Six miles to the gallon.

Brokamp: Six miles to the gallon.

Housel: That's great. Someone made the joke that you should start measuring that in gallons per mile.

Brokamp: If you read what New York City was like in the '70s, crime was such an issue...

Housel: Oh, it was such a big issue.

Brokamp: ...back then. It was pretty scary. The blackouts that happened in the '70s. It just felt different.

Housel: I had a friend who had a 1970-something Ford pickup truck. A real old pickup truck. He said that when he was driving up a hill, if he floored it he could see the gas gauge move. He was probably exaggerating, but I would believe that story.