# The Bull Market That Loses You Money — What 1873 Still Explains About Today

> Listening notes from The Meb Faber Show, 2026-08-14. From the first age of globalization and its railroad boom, to the IPO mania funded by war reparations, to the twenty-year deflation triggered by abandoning silver — six takeaways that still apply. Educational content, not investment advice; no stock picks or price targets.

Published: 2026-08-16
Locale: en
Tags: financial history, deflation, bubbles, asset allocation, risk management


![Guests still dancing on the upper landing of a marble palace staircase, the light fading down the steps toward a crowd waiting in the hall below](/covers/mebfaber-2026-08-14-luke-gromen-the-bull-market-that-loses-you-money-6-cover.png)

> The men of Qin had no time to mourn themselves; those who came after mourned them. But to mourn them without learning from them is only to leave still later generations mourning us in turn.
>
> —— Du Mu, "Rhapsody on the Epang Palace" (Tang dynasty, 825 CE; translation mine)

## What this episode is about

The Meb Faber Show on 2026-08-14 covers a crash most people have never heard of: 1873.

The guest wrote *Lords of Finance*, and came on to discuss his new book about 1873. His claim: this was the first genuinely global financial crisis — Central Europe, the United States, and what were then emerging markets, all hit at once. And it wasn't a crash that ended when the falling stopped. What followed was twenty years of falling prices that rewrote the politics of two continents.

What struck me most is that the technology of that world is unrecognizable, but **the pattern of people and capital is almost unchanged**. One new technology absorbing the world's capital. Savings with nowhere to go, pushed into a new asset class. A first crash, followed by a chorus of "that was a one-off" — and then the second shoe drops.

Here's what stayed with me.

## The main points

**1. It was a stock bubble built by bond investors.**
The stereotype of a bubble is retail money chasing equities. The road to 1873 ran the other way. A new saving class had emerged in Europe — their parents built businesses, this generation held the money. They put it in government bonds: British gilts paid 3%, French bonds 4%. And they were scarred on equities — the bear market from roughly 1845 to 1850 was the deepest they had lived through, so they avoided stocks entirely. **The first phase of the global boom was therefore financed by bonds**, with capital flowing out to infrastructure worldwide: ports, and above all railroads. Railroads were the AI stocks of the mid-nineteenth century. There was a railroad boom in the US, one in Europe, even one in Argentina. It was the first time a single technology and a single source of capital drove the whole world economy.

**2. What turned the boom into a mania was money that got pushed in from outside.**
After the Franco-Prussian War, Germany imposed a billion-dollar indemnity on France — and as the guest notes, multiply figures from that era by a thousand to feel them today, so call it a trillion. The German economy was $4–5 billion. **Twenty percent of GDP injected in two years.** Most of it went to German states, which used it to retire their debt. So savers who had held nothing but government bonds their whole lives suddenly held cash. A burgher in Hamburg looked around and asked, for the first time, where do I put this? So did the middle class in Munich and Berlin. The answer was the stock market. What followed was the *Gründerzeit*, the Founders' Era — two or three years of frantic IPOs across Germany: banks, railroads, anything. The guest calls it the first IPO bubble, and compares it to the dot-com years.

The mechanism is worth sitting with. **That money wasn't earned into the market; it was repaid into it.** An exogenous, time-compressed pile of capital pushed a risk-averse population into risk assets in one move. This kind of bubble doesn't require people to become greedy. It only requires their alternatives to be removed.

**3. The crash arrived in three parts, with a false all-clear in the middle.**
First Central Europe: Vienna and Germany broke, with major stocks halving in a single day. The scene was surreal — the emperor's daughter was getting married, so every royal family in Europe was in Vienna dancing to Strauss and dining every night, while a few streets away the exchange collapsed. One detail I can't shake: this was the first era of stories about ruined speculators killing themselves, except in Vienna what seems to have happened is that **they folded their clothes neatly by the canal, jumped in, swam to the other side, and disappeared** — because they had bought on margin and needed to escape their creditors.

Then nothing happened. Everyone concluded Vienna had simply gotten overpriced; not our problem. **Four months later the second shoe dropped**: in September, Jay Cooke & Co failed in New York. That wasn't a stock crash, it was a cascade of railroad defaults. Jay Cooke had raised $2 billion for the Union government during the Civil War; he was a friend of the president and the best-connected banker alive. He announced he could not fund the railroad he was sponsoring — partly because Europe was in turmoil, and roughly a third of the capital in US railroads was European. The psychology was exactly 2008: if Lehman can't fund itself, can Citi? By year end, a third of railroad companies had stopped paying interest. Within five years, half. The third shoe was sovereign: Egypt and Turkey had borrowed $1.5 billion in London, about the same as US railroads, and defaulted.

**4. What turned a recession into the first Great Depression wasn't the crash. It was a monetary decision.**
This is the heart of the episode. The world wasn't simply on gold. A third of it ran on silver (Central Europe, thanks to the Bohemian mines), a third on gold (Britain, Portugal, a few others), and two countries — the US and France — ran on a combination. The Banque de France was effectively the balancing wheel of the system: when silver was abundant it absorbed silver and issued currency against gold, and when gold was abundant it did the reverse.

In a crisis, everyone scrambles for the safe asset, and the safe asset then was precious metal. But in 1873 Bismarck, having beaten France on the battlefield, decided to hit its financial system too: **he sold Germany's silver and moved into gold**. Silver collapsed. It hurt Germany, and hurt France more. One European country after another abandoned silver as a monetary base. So a scramble that would have split across two metals was funneled entirely into one — **an acute shortage of the safe asset**. Credit tightened violently. Wholesale prices fell 30% by the end of 1873, and that was the start of a twenty-year deflation.

The US had its own omission. The dollar floated during the Civil War (1860–1865) and the price level doubled. After the war the Union government resolved to return to metal; trying to do it fast caused the recession of 1865–66, so they slowed down and set a ten-year path targeting 1879. **They forgot silver.** The belief at the time was that California and elsewhere had produced so much gold that the world could simply do without it.

**5. Deflation isn't "things get cheaper." It's a machine for making debt heavier.**
The guest's definition is clean: inflation is too much money chasing goods; deflation is too little money chasing goods. People hate inflation because everything costs more. They hate deflation just as much, because your goods get cheaper while **your debts do not shrink** — they sit on your back like a millstone. The people who like deflation own financial assets. The people who hate it have mortgages: farmers, households who borrowed. His example is post-1990 Japan. You borrowed to buy a house; thirty years later it's worth half, and you're still paying the same mortgage. That's a large part of why Japan lost three decades — **carrying that debt, people cannot summon the resources to invest**.

And the bill isn't only economic. America had just been split North-South by race in a civil war. Now it split East-West by economics: farmers in the West, bankers in the East. It fractured the Republican Party, fractured the Democratic Party, and produced twenty years of political stalemate.

**6. After a crisis, people will find someone to blame.**
With prices falling for two decades, a great many people concluded that the system did not work for them — the most fertile soil there is for conspiracy theories. In Europe the blame fell on Jews, and in a **new form: previously religious, now economic**. The word "antisemitism" was coined by a German, Wilhelm Marr, in 1879 — as a term of approval. (A caustic footnote from the guest: Marr married four times, three of them to Jewish women, and recanted late in life, calling it a giant mistake.)

The American version blamed the British. Western farmers reasoned: which country benefited most from gold? Britain. We lack credit because we abandoned silver, so British bankers did this to us — the story being that respectable British bankers arrived with $100,000 in their pockets and bribed Congress. It became known as the Crime of '73, and later mutated into the Rothschilds pulling the strings. The guest is blunt: **none of it was true**. The Rothschilds had no US presence at all. They had lost heavily in the canal boom of the 1840s, were outraged that states claimed sovereign immunity so they couldn't even sue, decided the system was insane, and stayed away.

Asked what he'd tell Washington if they called, he joked that he has caller ID and lives in Idaho. Then he gave the heaviest line of the episode: **today's problem isn't the debt, it's the stock market.** US equities are around $80 trillion against $30 trillion of GDP — over 250%. In 2000 the peak was maybe 120%. Everyone has since said the economy walked through 2000 easily and the wealth effect was modest. But stocks are now more than twice as large relative to the economy, and **participation is broader than ever** — he points at his own kids, in their early forties, whose 401(k)s are entirely in equities and who see no reason to own a bond. Meanwhile the public has developed a taste for speculation: meme stocks, crypto, gold. Everyone is looking for the thing that goes up ten times.

(The single most useful piece of investment advice in the episode is a century old. Someone asked J.P. Morgan the secret of his success. He said: **selling too early**.)

## Going further

### "The news says record highs every day. Why am I not making money — why am I tighter?"

This is where the episode's title is most honest. A bull market that loses you money isn't a contradiction. It has a mechanism.

The first layer is the denominator. Rising asset prices are only your business on the assets **you hold**. In the run-up to 1873, world trade quintupled and the major economies nearly doubled — but the boom was carried by bondholders. The people later pushed into equities watched half their paper wealth vanish in a day. Same "great bull market," opposite outcomes, decided by entry point and what you owned.

The second layer is harder to see: **during a boom, your liability structure gets quietly adjusted**. Leverage is cheap and easy in a mania, so a lot of people tighten their own balance sheet on the way up. The Viennese folding their clothes by the canal didn't lose because stocks fell. They lost because they had bought on margin. When prices reverse, assets follow the market and debts don't — which is exactly the millstone the guest describes when he talks about deflation. **The most common way a bull market loses you money is by getting you to mortgage your future self at the high.**

Practically, I keep two sheets separate. One says what I own and at what cost. The other asks: if prices go sideways for two years, or fall thirty percent, does my cash flow still hold? The second sheet has nothing to do with whether the index made a new high — and it's the one that determines whether the next crash finds you a forced seller or someone who can sit still. The index high is news. Your second sheet is your situation.

### "Everyone else is making money. Do I chase?"

The episode offers a harder test than sentiment: **look at whose money this is, and how it got pushed in.**

The German case is almost clinically clean. One indemnity, two years, twenty percent of GDP, used to retire government debt. That means the inflow happened not because investors reappraised risk and reward, but because **their alternatives were destroyed** — the bonds were called, the cash was in hand, and the only place issuing new paper was the stock market. The supply side responded immediately: charlatans noticed a wall of money looking for a home and started forming companies, and for two to three years all of Germany was doing IPOs.

Applied today, the question isn't "is everyone optimistic." It's three sharper ones. Where is this bid coming from — income, policy injection, or another asset being redeemed out from under someone? Is it under time pressure (money that must be allocated on a deadline becomes drastically price-insensitive)? And how fast is supply responding — **the rate at which new vehicles appear is the most honest thermometer of a mania**, because it measures not how investors feel but how many people think money is currently easy to raise.

As for chasing, the episode's answer is Morgan's. It sounds like modesty; it's actually a cold asymmetry. Selling too early costs you **the gains you gave up** — a bounded number you survive. Selling too late costs you **an exit at the worst price, usually at the exact moment you most need cash**. Those two errors have different shapes and shouldn't be avoided with the same rule. As the host put it: everyone thinks they'll be the one to leave the party early, and nobody ever wants to, because right before it ends is when it's most fun.

### "The first crash happened and the world was fine. Does that mean it's over?"

The most useful thing in the 1873 timeline is the **false all-clear** in the middle. Vienna halved; the first reaction was that this would have global consequences; then nothing happened; so the consensus flipped to "one-off, Vienna was just expensive." New York didn't break for another four months.

Why? Because contagion doesn't travel through sentiment. It travels through **balance sheets**. A third of the capital in US railroads was European; once Europe seized up, Jay Cooke couldn't raise money. That link existed on the day Vienna crashed — it just took months to walk the length of it. And in those months, the market read "hasn't happened yet" as "won't happen."

So when a regional blow-up occurs, the question isn't whether others will panic. It's: **does what I own share a funding chain with what just broke?** Sharing a funding chain means something concrete — the same marginal buyers, the same financing channel, the same collateral pool. If yes, what you're seeing isn't the end; it's a delay. If no, it may genuinely be someone else's problem.

The episode also supplies the inverse case. The crash alone didn't create a depression — **the economy was surprisingly resilient**. What created twenty years of deflation was the monetary decision afterward, funneling all safe-asset demand into one metal. The guest is explicit that gold versus silver is not today's issue. What survives is the structure: **in a crisis everyone wants safe assets, and the supplier of safe assets is the government or the central bank.** If the authorities were profligate on the way in and let inflation run, they arrive at the crisis facing a dilemma — fight the inflation, or meet the scramble for liquidity? Damned either way. He's notably sympathetic to President Grant, who needed tight money to restore gold and loose money to fight the panic, chose tight, split his party, and got twenty years of deflation — while the dollar did become a serious currency. Which is a useful reminder that **the same decision can be simultaneously right for the long run and catastrophic for the short**, and you will be living in one of those stretches.

## Where to look next

- The Meb Faber Show, 2026-08-14 episode (full show notes are usually posted on the show's site)
- The guest's two books: *Lords of Finance* on the central bankers of the 1920s–30s, and the new one on 1873. A practical note from the host: the *Lords of Finance* audiobook is only eighteen hours, which at double speed is roughly one afternoon's bike ride
- If you want to keep pulling the thread, the American political history of the two decades after 1873 — the free silver movement, East versus West — is where every economic conclusion in this episode cashes out politically

## The one thing to take away

**One idea only: what determines the outcome is usually not the bad thing itself, but the first decision you make after it.**

The 1873 crash was a bad thing, and the economy could take it. What turned it into twenty years of depression was the decision afterward to abandon silver for gold. The 2008 housing crash was a bad thing; what tore American politics apart was the decision to rescue the banks and not the homeowners — and the guest thinks rescuing the banks was exactly right. The damage came from the half that wasn't done at the same moment. Bad events end on their own. Decisions don't. They compound.

**An exercise you can do today.** Take something from the last three months that really went badly — it doesn't have to be an investment. Being misread by someone. A red flag on a health check. A fight with family. A project sent back.

Draw two columns on paper.

Left column: **what the event itself actually cost**, in concrete terms — how much money, how many days lost, the exact sentence the other person said.

Right column: **the first decision you made afterward**, and what it has cost up to today. Stopped reaching out first. Put the report in a drawer. Averaged down. Left the project sitting.

Then ask one question: which column's consequences are larger?

In my experience the right column wins almost every time — and the left column stopped growing long ago while the right one is still compounding. This exercise doesn't ask you to be more rational. It only asks you to write the two down separately, because when they're tangled together, people spend a very long time believing they're still upset about the left one.