Last week ended with a flurry of buying Friday afternoon, but the rally was unpersuasive from a technical standpoint. I am on a hair-trigger alert now (see today’s E-Mini S&P tout) for signs that the widely expected October Crash may be starting in August. Some traders may recall that the stock market’s last hurrah in 1929 occurred in August with a strong rally to new all-time highs. Production and employment had already begun to decline, and that would make the period statistically different from this one. However, history never repeats exactly, and that’s why we need to factor in the quality of economic data before concluding that things are actually better this time around.
Recalling August, 1929
- August 10, 2015, 11:13 am
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August 9, 2015, 7:11 pm
RA,
The work of Friedman and Schwartz, A Monetary History of the United States is highlighted by former Fed Chairman, Ben Bernanke in a speech to honor Milton Friedman’s 90th birthday in 2002.
Briefly, Bernanke describes the impacts of a reduction in the ‘stock of money’ for countries on the gold standard as the cause of the Great Depression.
Bernanke concludes his speech with the following, “For practical central bankers, among which I now count myself, Friedman and Schwartz’s analysis leaves many lessons. What I take from their work is the idea that monetary forces, particularly if unleashed in a destabilizing direction, can be extremely powerful. The best thing that central bankers can do for the world is to avoid such crises by providing the economy with, in Milton Friedman’s words, a “stable monetary background”–for example as reflected in low and stable inflation.
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.”
If in fact the ‘lesson has been learned’ and the Fed’s solution is to simply stand by as the buyer of last resort, won’t any significant drop in the prices of things (stocks, MBS, commodities, etc) be met with an inextinguishable bid, first by the Primary Dealers and subsequently by additional outright purchases through the Fed’s SOMA book?
I agree that the forces of deflation are undeniable (hell I’m half the man I used to be) but isn’t it possible that This Time Is TRULY Different?
Best,
SBhttp://www.federalreserve.gov/boarddocs/Speeches/2002/20021108/default.htm
We won’t know if production/employment peaked in August(or July, September, etc) until some months out.