By 1937 the Hindenburg was the safest way to cross an ocean. The German Zeppelins had flown hundreds of commercial flights since the 1920s without a fatal accident. The Graf Zeppelin had made the first nonstop transatlantic passenger flight in 1928; no airplane could offer the same until 1939. Passengers paid $450 one way, about $10,400 today, for a cabin, two windowed promenades, a dining room, a bar, a writing room, a shower and a smoking lounge, cruising 600 to 800 feet above the Atlantic with the windows open.
Catherine Grace Katz’s “Shadow Before the Flame,” reviewed by Gerard Helferich this weekend, is about the final flight, and one paragraph of it is about everything this desk does for a living.
The gas
The Hindenburg’s 242 tons were lifted by more than 7 million cubic feet of hydrogen. Hydrogen lifts more than any other element and is highly explosive. Helium is inert and safer, but it provides less lift and in the 1930s was exceptionally expensive: the United States held a near-monopoly, designated it a strategic resource and prohibited its export. So the Germans flew on hydrogen from the beginning, and, in Katz’s telling, “by 1937, after hundreds of commercial flights, boasted a perfect safety record.”
Read that sentence again. Everyone involved knew what hydrogen could do. The choice was made because the safe alternative was costly and unavailable, and the choice was then validated, flight after flight, by the absence of the thing everyone knew could happen. On May 6, 1937, 12 hours late after storms in the English Channel and headwinds over the Atlantic, the airship approached the mast at Lakehurst, N.J. A faint bang, a shudder, and a fireball climbing into the sky. Sixty-two of the 97 on board survived, some leaping from 30 feet. Inquiries concluded a hydrogen leak near the tail was likely ignited by static electricity. Passenger airships were finished; even filled with helium they could not compete with airplanes. Herbert Morrison’s 42-minute radio narration became the first prerecorded news report ever broadcast.
Our read
A perfect record is not evidence that a risk is gone. It is evidence that the risk has not happened yet. That distinction is the entire discipline of the Risk Atlas this desk published in July — eight nameable things that can go wrong, each with a defense assigned, graded honestly — and it is the reason we keep grading it even in weeks when nothing goes wrong. Especially in those weeks. The volatility index closed Friday at 14.81, and the market has not had a 10% pullback all year. That is a record, and records are what the Hindenburg had.
The other half of the lesson is about why the hydrogen was chosen: the safe thing was expensive and hard to get. Helium in a portfolio is the reserve, the bills, the boring dividend book that gives up a few points of return in a good year. It always looks expensive when the record is perfect. The desk’s Keel books hold 15% of it on purpose, and the price of that — roughly seven points of this year’s return against the aggressive book — is what it costs to not be lifted by hydrogen.