In the 2014 movie “Fury” the statement from the character Wardaddy of “Ideals are peaceful, history is violent,” was truly not respected as a reflection of how history truly ebbs and flows. Equity, bond, and commodity markets follow a similar pattern and often end with an unforeseen conclusion, usually with an economic and sometimes even historic geopolitical reset.
There have been many bull markets in American history where the media, the public, and the financial world insists on that age old adage of “this time it’s different” only to have it collapse upon itself in a furious implosion of corruption, greed, and government incompetence.
So why should 2025 be any different?
Jesse Livermore said it best in Reminiscences of a Stock Operator with one sentence outlining the foolish beliefs of the public as even now the belief that “retail is the smart money” has become pervasive:
A stock which it is desired to distribute should be manipulated to the highest possible point and then sold. I repeat this both because it is fundamental and because the public apparently believes that the selling is done at the top.
This reminds us of the current era, where a top may or may not have been put into reality in 2024, where the retest attempt of those highs or a new one in the past month off of the April lows may or may not be complete, and that history can not repeat because improvements in finance, banking, technology, oh, and of course the Fed will bail everyone out is now the common belief.
It is the furthest thing from the truth over 100 years ago, and remains so today. When financial, geopolitical, and economic history shift to a new paradigm, markets are always the last to recognize the change until the pain is so pervasive that the institutions and masses are too terrified to speculate on the future.
In history, this is where the violence begins and often ends in larger and greater consequences as the arrogance of political-economists supersedes the reality of how and why business cycles occur and exist.
1896-1916 The Progressive Era of Economic Regulation
Instead of rehashing the foolishness of the Federal Reserve Act of 1913 as a Congressional absolution of their responsibilities for creating sound economic and monetary policy (sound familiar?), let us review the peak crisis of the era which almost crashed the economy on a permanent basis as that twenty year period in equities, despite technological innovation, was fairly flat if not downright poor in its performance.
The economy looked sound, was growing after the Spanish-American War, and seemed to be on a period of massive expansion with new technologies like mass distribution of electricity to households, audio recordings, automobiles, and the telephone.
Unfortunately, the progressive Presidency of Theodore Roosevelt initiating the regulatory theories of the Wisconsin Idea began to interfere with the monetary idealism of the era, along with another speculative fervor as the errors forgotten from the 1873-1899 cyclical Long Depression reared their ugly head again.
Of course, history reflects that the speculation that this would never end and despite an attempted rally in 1907, the market fell to much harsher lows in October and November of 1907, requiring the intervention of America’s banking cartel to prevent a complete collapse in the financial system.
The ominous parallel to Theodore Roosevelt’s 1907 crash and now is best summarize in one sentence of Adolph Edwards book, The Roosevelt Panic of 1907, where he stated:
It is natural to suppose that the President’s volatile and effervescent nature should be attracted by what is the fantastic and unreal by the sober realities of life.
The bizarre display of episodically irrational behavior then as to what is happening now with the current resident of 1600 Pennsylvania Ave., is truly troublesome upon reflection.
1919-1922 The Great Inflation and Forgotten Depression
“Soaring prices beguiled borrowers and lenders alike.”
– The Forgotten Depression by James Grant
Another sentence from history which suddenly appears relevant today. Borrowers in this current era are stunned they are being required to pay the debts back, but yet can still get credit to buy stock on margin through their online apps. Meanwhile lenders look at the stunning amount of applications declined yet continue to issue derivative instruments to drunken gamblers, aka, our banking and private equity investors at a stunning pace.
The next bubble from 1922 onward might well be the ultimate parallel for what the current era has been experiencing since the Great Financial Crisis which realistically ended in 2011.
1927-1933 The New Technologies and “It’s Different This Time”
Radio. Mass production of automobiles. Express rail service. Refrigerators, washing machines, and other consumer goods. It was a technological explosion after the Forgotten Depression stimulated by a contraction in the size of government and the belief that the newly formed Federal Reserve would maintain stimulative policies and that economic crashes and crises would never happen again.
Unfortunately, the same arrogance of that era is prevalent today.
1964-1969 No Recession but Minsky Was Right
Minsky argued that the “credit crunch” of 1966 was the first financial trauma since the 1930s that involved a run on a financial instrument or institution without a specific case of a failure or fraud. (Minsky 1986, p. 87) According to Minsky, the long expansion of the 1960s progressed as spending by nonfinancial corporations grew rapidly, fueled in part by external funds provided by banks. As he shows, net external funds as a percent of purchased physical assets grew from less than 4% in 1961 to more than 20% by 1966. (Minsky 1986, p. 88) Worried about inflation, the Fed began to raise interest rates.
– The 1966 Financial Crisis A Case of Minskian Instability? by L. Randall Wray, The Jerome Levy Economics Institute of Bard College
Sound familiar? Perhaps the chart below where no recession was officially measured but the credit crunch of 1966 was obvious with the Dow Jones Industrial Average correcting some 22%.
Name the difference between the brow beating LBJ gave the Fed and President Trump’s non-stop berating of Federal Reserve Chairman Jay Powell and the scotch is on me.
The Federal Reserve in fact noted this problem from the era in a paper titled 1965: The Year the Fed and LBJ Clashed by Helen Fesseden. Within that paper this gem from the testimony of Federal Reserve Chairman William McChesney Martin, Jr. in 1969:
Testifying before Congress in 1969, Martin addressed the issue of consistency, suggesting he regretted the Fed’s decision to ease in 1967 in hopes of getting the tax hike. “[A] credibility gap has developed over our capacity and willingness to maintain restraint,” he said. “We have been unwilling to take any real risks.”
The idea of easing was based on a political action, which as usual the Congress and President failed to follow through on even thought the Fed acquiesced as requested. Perhaps this is weighing on Jay Powell’s willingness to accept President Trump’s demands that a rate cut is needed now as the policy inconsistencies exhibited in this era might well create major problems leaving the Fed with no dry powder to deal with a real crisis, perhaps a credit crunch which does appear to be developing in this current time period.
2025: Draw Your Own Conclusion
The one consistent throughout American capitalist history is that when an era of massive societal and technological change is underway, markets of all types, be they commodities, credit, or equities endure a period of sharp, painful, violent adjustment.
The sudden, yet predictable inflationary surge of 2021 was not a shock to those who saw it coming. Hell, gold predicted it once the pandemic fear subsided.
What happens if this inflationary surge is not contained as the fiscal expansionism adopted by the current administration seems to indicate? Worse yet, as people start losing faith the viability of the current world reserve system and slowly begin to insulate their nations from being isolated as Russia was, what are the consequences of that historic shift away from a dollar-centric global economic model?
At this time, the United States is in the midst of a societal shift where entitlement supersedes the proper ethics of hard work and personal innovation to survive. This idea is slowly proceeding into the once despised concept of a “universal basic income” which would preserve one’s right to survive over the personal and financial rights of other citizens. It is the ultimate inception of income redistribution for all whereas a minority works for the “greater good” while millions of others offer no redeemable social value other than playing on their government cellphone keyboards, taking illicit drugs, and producing one minute videos of gibberish.
The technological innovation will be far more profound over the next decade. The need for “migrant” employment supplementation will end with the mass production of robotics and the systems needed to manage them. Artificial intelligence, though still a pipe dream of the programming elites at this time, will result in the need for lower and middle management types and used properly in concert with the right systems, improve the quality and profitability of manufacturing processes.
Now the question becomes how the American government will evolve into a modern era with new blood or will it remain entrenched in its stench of corruption and graft, further bifurcating America into the 80% of dependents and 20% of the reasonably well off plus extremely wealthy elites.
The storm clouds are gathering as they have in the past, it is time for markets to prepare for both potential outcomes:
A modern, quasi-Utopian future where want and need are reduced as financial innovation and technology are wisely supervised and used to advance mankind.
Or sadly, the corrupted model where one day we might indeed find ourselves subservient to a technocratic elite which controls every aspect of American society.
Market participants have to decide which outcome is the most realistic and the consequences of predicting incorrectly, as bull markets and periods of excessive speculation almost always end with great financial violence.
