The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 46

125 Years of the Counsel of the Consols

Kondratieff wave freaks (see Chart 84) love this chart because it helps make their case. I like it because, in parallel fashion to others in this book, it shows how interwoven are the financial threads of different major Western economies. The chart shows the yields of U.S. railroad bonds plotted against English consols from 1855 to 1980. Railroads were America's prime blue chips from 1860 until the 1929 Great Depression. They captivated America in the mid-19th century and were to U.S. financial markets what autos became in the first half of the 20th century—the major new technological development affecting the infrastructure (see Chart 34). In contrast, English consols were the English realm's long-term debt—the world's conservative investment of choice throughout the 17th and 18th centuries while England reigned supreme (see Chart 35). Consols were to the pre-World War II world what U.S. Treasury notes are today—the ultimate liquid safety haven.

Notice how over the entire 125-year period, the two interest-rate yields moved up and down in harmony. Early on, railroad yields were much higher, but they should have been higher. The railroad bonds were only as safe as the safety of the businesses themselves—certainly less than the full taxing power of the world's mightiest nation, which backed the consols. Even worse, railroad bonds represented businesses that not only transported folks in the civilized portions of the United States ...