Given the Black Monday crash of 1987, it is probably an unfortunate number for this week's diary (Number 87)
A number of years back I put a marker in my diary for 2023-2025. That was to remind myself that since the 1970's we have had this impressive ability to "muck things up" in a big way every 17 years or so.
We had 1972-1974; 1989-1991, 2006-2008 and then 2023-2025?
And true to form as we are now in 2025 it all of a sudden looks like we have found a way to "shoot ourselves in the foot" right on schedule.
I did not expect Jay, on Friday to come out with dovish commentary but I have to say i was shocked that he raised the bar even higher by flipping so quickly from the conviction that inflation was transitory to talk of the danger it was going to be more sustained.
This as he made no reference to the recent stock market turmoil. His comments about no "need to be in a hurry" was clearly designed to guide that he was not looking at a may cut.
The fact is that history clearly shows that the FOMC members are not masters of their own destiny in times of crisis and inevitably get "dragged kicking and screaming" to reverse course.
Were Jay's comments really a change of heart or a shot across Trump's bow that he could not rely on the "Fed put" to bail him out of the present predicament? was it the Fed's equivalent of the pushbacks by Canada, Chine, the EU etc. on the basis that it you allow yourself to get bullied once it will never end?
History does not support the contention that "Tit For Tat" tariffs are ultimately inflationary and we all know that Smoot Hawley in 1929-1930 was ultimately deflationary as it depressed global imports and exports, slowed growth and increased unemployment. With increasing signs that the US economy is slowing, wealth evaporating and the US consumer tapped out it is not clear that businesses have the capacity to pass on increased costs. Central bankers of the World have constantly preached in the past the idea that what counts is "2nd round effects"
This environment is not conducive to investment, to expansion, to hiring etc. Unfortunately for Jay he got no "cover" from Friday's employment report although we should not forget that we are back at the highs in unemployment at 4.2%- a full 8 10ths off the low and many other employment indicators are flashing warning signs while these numbers are clear lagging indicators
We also know that back then (1929-1932) as clearly articulated by Ben Bernanke to Milton Friedman on the anniversary of his 90th birthday the Fed became part of the problem as it refused to react to the deterioration. His comment was
"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
My fear is that on Friday the Fed became part of the problem by ratcheting up their resistance and signaling clearly to the market that at this point (as we hit bear market status on the NASDAQ and approach it on the S&P) there is no Fed put.
I put out a note on Friday titled IF The Shoe FITZ: Don't Shoot The Messenger.
In it I articulated a danger that I obviously hope will not happen this week but that I am fearful could.
Last Friday had disconcerting similarities with history but as we always say "History does not repeat but it does rhyme"
Everything in financial markets is about confidence and the price action of last week suggests to me that confidence is on a knife edge.
I heard too many people "hoping" that we would get some good news this weekend- and maybe we will, and things will be just "Hunky Dory" on Sunday night.
As I mentioned in my piece however- Hope is not a good investment strategy and if nothing good happens before the opening on Sunday night I fear that we could be in for a tumultuous Monday-Tuesday in markets and possibly even a scenario where Jay's comments on Friday get completely reversed not just in words but possibly even in actions.
In 1987 the Fed reversed course "on a dime" while in 1929 they stuck to their guns
"Those that fail to learn from history are doomed to repeat it"- Winston Churchill
