That’s it said the Business Man. Industry cannot run on optimism. Optimism cannot create commodities or sell them; it cannot operate a shoe factory or take shoes off the retailers’ shelves. it must first induce somebody to spend the money. – Waddill Catchings, p. 166 The Road to Plenty, 1928
And once again, the circle with no beginning completes another loop, just a century after the insanity of the decade that almost destroyed America.
This is not a political rant or dissertation. While many might well blame the current administration for its approach to trade, budgetary, or tax policy for the upcoming problems this society is about to witness, the causes have been building for over two decades. The policy mistakes did not begin in January of 2016 or January of 2025. It started with the abandonment of sound money in 1913, worsened in 1973, and accelerated after the unbridled financialization of the United States economy after the not so secret bailout of the Wall Street banks because of the 1998 Long Term Capital Management disaster.
Perhaps the single most terrifying aspect is this generation’s absolute lack of fear in addition to the negligibly short attention span. The lessons of that era, the 2004 Greenspan Housing Bubble beginnings, the Great Financial Crisis, and the 2018 banking scare might as well has happened 200 years ago or on Mars for that matter.
I. No Bears To Be Found
The excess reached a new peak this past week with some of the insane commentary on financial television.
For example, here is Dan Ives of Wedbush, one of America’s true mega-bulls on CNBC a few days ago:
Of course following this up with another permabull, Tom Lee, who was also on CNBC adds more fuel to the fire with his belief that the PE ratio should be much higher just because:
The belief that the Fed starting an easing cycle ignores historical reality, but that’s for a discussion later in this article.
These two videos were posted not for future mocking of the subjects, but for a historical perspective that while so many things have changed in the last one hundred years, following the road to plenty perspective in the stock market and from investment houses has not. Both of these individuals are no different than the financial houses prevalent in 1927 preaching to the masses to invest their hard earned dollars in equities because “this time it’s different.”
It is quite obvious that if one is bearish in this environment, one does so at their own personal or institutional financial risk.
II. The Economics of Bull Markets
On May 27, 1930 the New York Times published a small blip of an article about a personnel change at the prominent investment bank some of my readers might have hear about, Goldman Sachs. The initial paragraph is all one needs to read to understand the story as the individual mentioned did not retire, he was fired by Samuel Sachs.
Waddill Catchings, who has been a member of the firm of Goldman, Sachs & Co. since the war and president and director of the Goldman Sachs Trading Corporation since its organization in January, 1929, plans to retire from the firm and the trading corporation, it was learned yesterday. At the offices of the firm it was said that there was no statement to be made at this time, but it was indicated that an announcement would be at a later date.
I can assure my readers that a large percentage of the American population has no clue about his checkered history that almost destroyed Goldman Sachs, the books he wrote, or that he truly can be considered one of the ancient advocates for what is now called Modern Monetary Policy.
Yet Mr. Catchings’ most famous accomplishment could be that his actions gave this webpage its namesake during the last bubble in 2006 when I first started broadcasting on radio, warning on internet outlets, and writing more in depth articles about what was happening. It can also be summed up in just one picture from his actions that indicated the top of the 1920’s bull market was almost in.
To many this innocent looking stock certificate might not seem like much, but in the classic book by John Kenneth Galbraith, The Great Crash, the following excerpt might highlight its pertinence to the modern era once again:
The spring and early summer were relatively quiet for Goldman, Sachs, but it was a period of preparation. By July 26 it was ready. On that date the Trading Corporation, jointly with Harrison Williams, launched the Shenandoah Corporation, the first of two remarkable trusts. The initial securities issue by Shenandoah was $102,500,000 (there was an additional issue a couple of months later) and it was reported to have been over-
subscribed some sevenfold.There were both preferred and common stock, for by now Goldman, Sachs knew the advantages of leverage.
Of the five million shares of common stock in the initial offering, two million were taken by the Trading Corporation, and two million by Central States Electric Corporation on behalf of the co-sponsor, Harrison Williams.
Another excerpt highlighted the birth of the Blue Ridge Corporation, another investment trust of the Shenandoah umbrella:
Meanwhile Goldman, Sachs was already preparing its second tribute to the countryside of Thomas Jefferson, the prophet of small and simple enterprises. This was the even mightier Blue Ridge Corporation, which made its appearance on August 20.
Blue Ridge had a capital of $142,000,000, and nothing about it was more remarkable than the fact that it was sponsored by Shenandoah, its precursor by precisely twenty-five days. Blue Ridge had the same board of directors as Shenandoah, including the still optimistic Mr. Dulles, and of its 7,250,000 shares of common stock (there was also a substantial issue of preferred) Shenandoah subscribed a total of 6,250,000.
Goldman Sachs by now was applying leverage with a vengeance.
The markets continued to surge in August of 1929. Those who doubted it would not go higher were called bears as a compliment and much worse by those that wanted, hell, demanded that this bull can and will go higher. But what made Blue Ridge unique to this issuance was this feature buried in the prospectus, also excerpted from the book:
An interesting feature of Blue Ridge was the opportunity it offered the investor to divest himself of routine securities in direct exchange for the preferred and common stock of the new corporation. A holder of American Telephone and Telegraph Company could receive 4 70⁄715 shares each of Blue Ridge Preference and Common for each share of Telephone stock turned in.
The same privilege was extended to holders of Allied Chemical and Dye, Santa Fe, Eastman Kodak, General Electric, Standard Oil of New Jersey, and some fifteen other stocks.
Amazing, right? But that practice is still used today, in this very market with leverage appearing everywhere with triple inverse and bullish ETFs (Exchange Traded Funds) on individual issues like Nvidia (Symbol: NVDA) for example. In fact, one can even trade shares in common stocks for shares in an exchange fund to diversify their portfolio and theoretically reduce capital gains impacts just like exchanging for Blue Ridge shares in 1929 (Definition from Investopedia: An exchange fund is an investment that allows shareholders to exchange large holdings of a single stock for units in a diversified portfolio, enabling them to diversify and defer capital gains taxes.)
So for everyone who screams at this author and my readers that “this time is different” or “our markets do not engage in that type of risky behavior like they did back then,” and of course my favorite “our technology prevents problems from impacting individual investors from adverse events” I would strongly advise everyone open up some history books and start reading about 1893, 1907, 1920, 1929, 1973, 1987, 2007-2009, and of course the mini-crash of 2018.
Wall Street survives on fees and without the belief that America and the world is always in a perpetual bull market, their ability to make a living might require them to take a job at Starbucks as a barista if that faith and those fees evaporate.
In almost every event in those time periods listed above the same excuses were offered, the same warnings ignored, and the ultimate bagholder once again was the retail investor.
III. Oh Charles, Where Art Thou?
On April 1, 1928, one of the most famous letters in Wall Street financial history was published by the New York Times from Charles Merrill, the one and only of Merrill Lynch fame. The excerpt below was meant to send a warning to individual investors that the dangers of speculation and leverage will eventually lead to a crash.
The markets shrugged off this letter and other warnings as those of Cassandras, people who didn’t believe in the American Dream or that this time it was different, or worse, that our new technological era would never allow the mistakes of the past to happen again.
Then, as now, some members of the Federal Reserve were deeply concerned about the rampant speculation and more so concerned about the potential impact on the financial system as a whole. As early as February of 1929 there were calls to raise the New York Federal Reserve’s discount rate up to 6%. As one might say, the rest is history, via the Federal Reserve Bank of St. Louis online document system, The Discount Rate Controversy Between the Federal Reserve Board and the Federal Reserve Bank of New York, Box 1246, November 1930:
This created a massive problem as during that era, the gold standard forced another nations to raise their interest rates also to slow down and prevent the flow of gold reserves to the United States, which restricted credit not only domestically but internationally.
The impact did prevent many banks from issuing any more margin loans on equities to perspective clients but by that time the damage was already done. It was obvious to many of that era that an illness was hitting the economy and this was before Smoot-Hawley, the trade wars, and total collapse of the American banking system.
IV. The Pandemic of Hubris
In Florida, one of the major enemies of home ownership, be it a condominium or a home, is the termite. It eats away at the wood built on top of the foundation, eventually leading to the structure weakening greatly and in not addressed, eventually collapsing.
The American economy has been gnawed at by economic termites for over a year now, with unemployment creeping higher since the middle of 2024, credit delinquencies for consumers and commercial property owners increasing steadily, and the political papering over of sovereign issues by using fiscal irresponsibility to keep the party going, even at the expense of future generations.
Extending and pretending the credit bubble to maintain current levels of consumer spending via special subprime credit card issuance, creative banking alternatives, payday loans available via cellphone apps, and of course BNPL (Buy now pay later) schemes are simply delaying the inevitable collapse in consumerism for the lowest 59% of the America’s population as inflation has diminished their ability to maintain the lifestyle they have enjoyed since 2021.
The talking heads promote the strong economy mantra by insisting that the masses in the US are fine because consumer spending appears strong(see last paragraph), credit appears relatively available to the masses, and Wall Street speculation does not appear to be in a bubble status as earnings will eventually catch up to these outlandish valuation levels, if one is to believe the “experts” once again. But that sound that is annoying the pumpers on the Street is that echo of bubbles past chewing away like termites of truth at their financial fortress destroying the studs and making the foundation shakier by the day.
Consider this idea, which should terrify the financial markets as the Trump administration continues its verbal assault on Chairman Jay Powell and the Federal Reserve. What if inflation as measured by the Fed’s favorite gauge continues to increase in August above the target level and core inflation rates creep higher towards the 3% annualized level?
The Fed can not cut in July obviously as employment data theoretically remains strong. Inflation persists at higher than anticipated levels so despite the rantings from the White House Powell has no choice but to hold strong in August and probably September.
This opens the door for several potential adverse effects hitting the markets in addition to the trade war:
1. The Jackson Hole meeting results in Powell announcing that the war on inflation is not over and policy needs to remain firm as employment levels as reported remain strong.
2. Other nations around the globe continue cutting rates which results in a de facto higher rate vis-à-vis the Fed, further complicating the trade conflict as it would appear on paper that other nations are attempting central bank driven currency devaluations to offset slower trade and economic activity.
3. This further enrages President Trump resulting in an act which would shock the markets even more so than the tariff wars; Jay Powell is demoted as Chairman to the Federal Reserve. There is historical precedent for this action as President Truman demoted Marriner Eccles as Federal Reserve Chairman in 1948. From the Time magazine article of February 9, 1948 on this controversial decision:
Amid the cheers of bankers and brokers, Harry Truman abruptly demoted Marriner Eccles from the chairmanship of the Federal Reserve Board last week. In the place of old New Dealer Eccles, the President put Thomas McCabe, chairman of the Philadelphia Federal Reserve Bank, president of Scott Paper Co. (tissues). In politics, McCabe is a Republican.
Why did Harry Truman do it? His motives were not too obscure. Eccles’ term on the board ran to 1958, but his chairmanship was about to expire (Feb. 1). The small, greying boss of FRB had become increasingly irritating to Mr. Truman. Eccles had disagreed with Treasury Secretary Snyder on how to handle inflation. With his recommendations for tighter Government controls of banks and financing, he had stirred up the bankers and brokers. He was always treading on toes.
While Eccles was coming to the end of his term as Chairman, Powell still has almost a year to go. Technically speaking, the May 22, 2025 Supreme Court ruling does prevent the President from terminating a Federal Reserve Governor from the board however it does not exclusively prevent the demotion of a Chairman in Justice Robert’s ruling.
A major problem is that markets are often blindsided by not noticing how the one illness, the one cyclical disease, has spread to participants even though it can be detected without nasal swabs or infrared thermometers.
The pandemic of hubris.
History is the only cure, yet few want to read history, much less understand the warnings from the past and present that this behavioral anomaly will not last forever. Despite the names changing, the books and websites evolving, and the theory that the “Road to Plenty” can be achieved with tweaks of modern monetary theory and government coordinating fiscal policy with industry, eventually the bill comes due.
The hubris has spread far beyond the political elites, judicial overreach, and Wall Street; it has embedded itself in the retail investor to the point that many now believe the preaching of the financial media which only exists because of their speculative dollars. The masses are now better than the institutions which provides an extra boost of arrogance that they can do no wrong in selecting an equity, speculative bond fund, or a hot crypto issue of the day with their investing decisions.
Is this author predicting an eminent crash?
I would give this proposition a better than 60% chance of it occurring in the next 2 to 6 months. Would I advise someone to do what Charles Merrill suggested in his letter above? The majority of my readers are grown ups, and hopefully they can reach those decisions on their own without the counsel of an internet observer fearful for what is coming next.
