The “Who’s Driving?” Challenge

Who’s driving this bus?

At "A Dash" we have noted that many market analysts are currently emphasizing the policy role of the Fed.  In particular, they suggest that there is a "myth" about a soft landing (we prefer the Glide Path), supporting this view with a handful of cases stretching back in time to cover ten or, twelve, or sixteen cases (if they decide to include the Great Depression).  The point is that the emphasis is on the Fed.

At the same time some of the same analysts endorse the Presidential Cycle.  Under this theory, the administration does something good for the economy in the time before an election, and the market responds.

Since the Fed does not follow any Presidential directive, most notoriously in the George H.W. Bush administration, there is a question of consistency here.

The challenge is twofold:

  1. Find an analyst who has espoused both of these positions (there are many), and
  2. See how they have reconciled the competing forces in past years.  Who was driving the bus in the 1974 era, for example?  This is one held up as a failure to achieve a soft landing.  Preliminary analysis might suggest that it had something to do with Vietnam, Watergate, wage and price controls, Whip Inflation Now buttons, and other factors, but some point at the Fed.

Happily for most of us, we can just look at the record of economic policy over the last twenty-five years.  It includes both parties in control of Congress and the Presidency.  It covers two market "bubbles" and crashes and a couple of modest recessions.  Owners of stocks made five-fold gains, as did the U.S. economy.

The challenge to those giving dire warnings to equity investors is to show why today is more like the 70’s or 1987 than any time in recent history.

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