Here's the thing. It's not so much the motivation behind the current market mania that interests me, as much as the fact that the mania is taking place.
Or to put it differently: three years ago, during the heyday of Covid, we saw a similar phenomenon. Stocks and Bitcoin were soaring, people who weren't in the markets felt like idiots, and 23-year-olds in Reddit forums were making it rain. Fast-forward to today, and we have Coinbase soaring 80% since the election a week ago, and Goldman's "meme" basket up more than 20% (and starting to approach 2021 levels).
This doesn't just feel like a Trump-induced rally to me, in other words. This feels like a Trump rally on steroids. And what are those steroids? Liquidity. And who controls liquidity? The Federal Reserve.
The clearest sign that the economy was overheating last time around--and a leading indicator of where inflation would ultimately head--was in the stock market. The Nasdaq peaked in November 2021. The CPI peaked at over 9% the following June. Dave Portnoy half-joking that "stocks only go up" was a sign back then that something was amiss. Now, we're back to traders posting their gains on social media.
I was surprised at the time that more thought leaders weren't extremely concerned about "meme mania"--not just because of the potential losses, but as a sign that the economy was seriously out of whack. Maybe I'm just fighting the last battle, but I now worry we could be making the same mistake a second time around.
"It's getting humorous that the Fed sees any need to cut rates when financial conditions are so easy, and speculative capital is running rampant," Richard Bernstein's firm wrote in a post on X today. But that's what the Fed did; cut rates by another quarter-point last week, even after their half-point cut at the prior meeting sent stocks, credit, and long-term interest rates soaring.
I understand that intellectually, "economic conditions" dictate lower interest rates. But back in 2021, everyone kept pounding the table for more stimulus based on that same set of conditions, while ignoring signals from the financial markets that there was too much stimulus already.
To this day, in fact, people insist that there was no overheating in the economy, and that inflation was a result primarily of supply-chain price shocks. But that completely overlooks the liquidity mania that was playing out in markets all along the way.
So yes, in theory I love the fact that the Dow and the Nasdaq closed at record highs today, and the S&P closed above 6000 for the first time. Bitcoin hit almost $90,000 tonight! But I think we have to take the message on monetary policy more seriously this time around. And if I start seeing "move over Warren, I'm the captain now" posts on X again, it's going to be hard to resist the urge to sell everything.
See you at 1 p.m!
Kelly