I have been known to be a bear. Hell, I’ve also been known to preach some doom, gloom, death, destruction, and the end of civilization.
Based on current events, that would seem to be a sound analysis of everything that is happening in our world today.
My preference though, is to analyze history and look at things from a different perspective from everyone else and see if patterns emerge that replicate other troubled times in history. On FinTwit (Financial Twitter) and among some friends I have been publishing a chart which should be a dark reminder to those ignorant of history.
In 1987, the US 10 year Treasury had yields shoot up as there was fear of the economy overheating and a new untested Federal Reserve Chair was facing the potential of a revival of inflation, the destructive economic consequence of the 1970’s and weak Fed leadership.
Unfortunately for the new Fed Chair, he would face a crucible by fire just two months after assuming the office on August 11, 1987.
That’s right boys and girls, the one and only Alan Greenspan.
On September 22, 1987 in one of his early FOMC meetings, the following excerpt from the Fed Policy Statement stated the following:
Throughout the statement, Greenbook, Bluebook and other Fed publications and public pronouncements there was no indication of a pending panic, no excitement over an economic event, some concern about potential inflation, and very little worry that economic growth along with monetary expansion would create a problem for the economy.
The market, however, had already taken over the policy decision from the retiring Volcker and incoming Chair Greenspan by starting a rocket ship in the 10 Year US Treasury Yield starting in the spring of 1987:
Thus this author’s reference about the whining on business television, radio, and FinTwit today about a 4.50% 10 year yield almost, I repeat almost seems laughable.
The past year has had some interesting price action in the 10 year yield also:
There are key differences between that era and this one. The entire “safety” trade was based on the newfangled (technician term) Portfolio Insurance which was engineered to prevent cascading sales and crash events. That did not work. Thankfully we have 0DTE options and ETF’s for everything imaginable which are much, uh, safer alternatives. We hope. And no, I’m not being serious with that statement, it’s a Ford Pinto with Firestone 500 tires wrapped in a flaming Tesla doused in gasoline.
Thus should the 10 year suddenly pierce the 5% yield by early to mid-October not only will my alarm increase on these pages but my mattress might get fatter after I tap my bank for every note they have in circulation. Because this time if we have a 22.6% crash, I fear this country may not return back to normal as we once knew it.