“Maestro” and Me

By David Stockman  |  April 24, 2019

Everyone should be respected as an individual, but no one idolized.

– Albert Einstein, Einstein on Politics: His Private Thoughts and Public Stands on Nationalism, Zionism, War, Peace and the Bomb (2013, Edited by David E. Rowe & Robert Schulmann)

The S&P 500 Index posted a new all-time closing high on Tuesday, 2,933.68. It got as high as 2,936.31 yesterday, it reached 2,936.83 earlier today, and it’s sitting 2,932.51 a couple hours shy of the close.

It’s creeping up there, but it’s still short of “Peak Trump.” It pays to remember what happened the last time major indexes enjoyed such vistas…

It took 64 trading days for the most widely followed equity index in the world to go from 2,940.91 on September 21, 2018, to 2,351.10 at the close on December 24. That’s a 25% selloff.

And it’s taken 82 to get almost all of it back. That makes this one of the fastest upside retracements off an “official” correction in market history.

The Federal Reserve gift-wrapped this ride to new highs. And it might be the Fed-blown bounce to end them all.

Over the next three days, we’ll take a deeper look at how we got here – and who made it happen.

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It goes without saying, of course, that Alan Greenspan panicked like the rookie he was in the face of the 22% Wall Street meltdown on October 19, 1987.

“Black Monday” exposed him as an Washington D.C. insider and power-seeker who’d long ago surrendered his “gold standard” purity.

I know Alan’s grift from first-hand experience. During my tenure at the Office of Management and Budget (OMB), he called me on a regular basis. He had all kinds of recommendations for policy – and politics. But the restoration of a gold-backed dollar wasn’t among them.

At the top of his priority list was a desire for status inside the Acela Corridor. A fawning New York Times profile published around the time of his June 1987 nomination to be Chair of the Federal Reserve shed some light on his ambitions to power:

JUST last weekend, Alan Greenspan attended Henry Kissinger’s lavish 60th birthday party accompanied by Barbara Walters. When not attending such elegant affairs, he can be found on television or in Washington or in the most powerful of corporate board rooms offering his views on economic affairs, politics and the social issues of the day. At age 57, Mr. Greenspan is one of the most popular guests on New York’s party circuit – and one of America’s leading and most sought after economists.

Now, however, the bespectacled, softspoken Mr. Greenspan is being talked about for what would be his most lofty position. He is nearly everybody’s first choice for chairman of the Federal Reserve Board, should Paul A. Volcker, the current occupant of the venerable post, be asked to step aside by the President in early August. The only question is whether he is Ronald Reagan’s choice as well.

“Alan doesn’t have any competition, does he?” said Otto Eckstein, chairman of Data Resources Inc. “He’s a known quantity in Washington, and he’s acceptable to the financial community because he’s known there, too.”

Faced with a choice between co-signing the massive Reagan deficits and continuing Paul Volcker’s sound money era, Greenspan cranked up the Fed’s printing press.

And he used his power to force Wall Street trading desks to hold securities they’d have liquidated under rules of a free market.

Greenspan’s betrayal of sound money saved Ronald Reagan’s bacon. The recession ordained by his feckless fiscal policy was deferred by several years.

And, now, we have the myth that the Gipper had saved the American economy and, at the same time, proved that “deficits don’t matter.”

The real, consequential lesson learned by aspiring monetary central planners is that they can monetize massive amounts of the public debt… that they can kick any “reckoning” down the road… that they can lead Imperial Washington, Wall Street, and Bubblevision to believe there really is a free lunch… that they can become “Maestro.”

Because Alan Greenspan was the toast of the town. He’d shielded his betters from the trouble that sometimes comes with honest financial markets. And he’d shown how to mitigate, at least in the short term, economic pain on Main Street…

The Powell Pivot is only the latest attempt to conjure “Maestro”-like effects.

Tomorrow, we’ll talk about what monetary central planning can deliver: falsification of asset prices, serial bubbles and busts, and the propagation of destructive signals to politicians, businesses, and households to borrow and speculate rather than save and invest.

Speaking of “Save” and “Invest”…

Desperate times call for… “common sense” measures.

And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.

We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.

I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”

All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…

To common sense,

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David Stockman

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR