Opinion

The Crash Party

Since 1900 markets have had their fair share of crashes. Mind you crashes don’t happen that often, in fact crashes are very rare. You know what’s also very rare? A particular party being in power preceding crashes. Every single time, making them the crash party.

Oh don’t start hating on me. This is not a political post, but I know how tribal politics are these days and you say one thing about anyone or party you get hammered. For the record: I’m not a Republican and I’m not a Democrat. Tribalism, parties, clubs, it’s just not in my DNA. I’m an independent or outsider or whatever label fits.

I analyze charts, trends, macro data. And people who have followed me for a long time know I’ve been ranting about the Fed during the Obama administration as much as I am now. So this post has nothing to do with party, but with history and the data is surprising.

First off, what were the big crashes since 1900?

In chronological order:

The panic of 1907. This is what ultimately resulted in the formation of the Fed to not to let something like this happen again.

Of course it did as the next crash came in 1929. Then we went on to various recessions, ups and downs and stagnation in markets for decades.

The next famous crash came in 1987. Black Monday. Over 20% in a swift flush.

Then of course came the Nasdaq tech crash in 2000 and then of course the great financial crisis in 2008/2009.

All of these periods came on the heels of market excess, massive rallies, vast optimism, and then the busts came.

But here’s the weird thing: ALL of these crashes happened following more than 2 years of GOP control of the Senate, or combined with control of the presidency and in one case the House and the Senate but not the presidency:

To appreciate how historical this is: These are also the ONLY times the GOP has had such control. To see the full history visit: Divided Government.

What you will find is that historically there’s a board spread of control with Democrats more often than not controlling both the House and Senate. And yes, there was trouble too once when Democrats controlled everything. 1937 is an example. Big nasty recession during the Great Depression. But that was it really. Real market crashes appear to only occur during GOP led times.

History shows Republican control of government is historically rare and when this control happens for more than 2 years a market crash has occurred every single time.

Don’t yell at me, that’s just the history. If there’s a crash the GOP controlled the Senate for more than 2 years. Every single time. The ONLY time that there was no crash was during the 2 years the GOP controlled the House, the Senate and the presidency in the 2 year period in 1954-1955. But as soon as the Senate is controlled by Republicans for more than 2 years a crash has occurred every single time.

1907, 1929, 1987, 2000, 2008. Sorry GOP fans, but none of these crashes occurred following Democrat control of the Senate or the government at large.

One can speculate as to why that is or whether this is just a giant coincidence. If it is a giant coincidence then one could argue that’s just an extraordinary string of bad luck. If one is to look for correlation one may point to a GOP habit of cutting taxes, promising the moon on growth and markets overheating as a result, creating massive market excess in the process, the unwind of which then results in a crash. I don’t think that argument would hold true in the 2000 scenario, much of this was the technology boom and the Fed adding liquidity in 1999 for Y2k.

But in 1986 Ronald Reagan cut taxes and markets rallied until they crashed in 1987.  George Bush cut taxes in 2001 and then again in 2003. Deficits again rose, markets rallied hard into 2007 and then the financial crisis came.

I don’t think any fair minded person can blame the GOP solely for market crashes and I’m not doing that. Major crashes happen as a result of a combination of multiple factors, but all relate to market excess, excess optimism and more often than not artificial financial infusions, be it central banks, tax cuts and heavy deficit spending. And then markets go overboard, disconnect too far from the fundamentals and then set up for a violent reversion which then brings about the recession and/or crash.

I suggest that all these elements are again at play: We’ve had massive tax cuts, have trillion dollars deficits, massive optimism and massively stretched valuations and guess what else: Republicans in charge for over 2 years of the Senate and the presidency. The crash party?

Don’t go around saying I’m calling for a crash. I’m not. History is.


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Categories: Opinion

21 replies »

  1. Your voice is heard, Sven. Not just here and on Twitter….slowly but surely the discussion will find itself into the public eye. It’s just terribly sad that it will take a disastrous crash, with every day people losing their jobs/house/savings before things will change. I can only hope that this time, people will be held accountable…perhaps a fool’s hope.

  2. Fascinating observation but likely lacks additional context that may be worth exploring. Sort of like the MSM observing relative job growth during prez terms.

    Also always interesting to note any trends regarding taxing & spending when all bills originate from the House, not the Senate.

    • As Columbo said, just before the denoument of the bad guy….”Just one more thing…” How long has it been since anything other than a continuing resolution came out of anywhere? Between fiscal year 1977 and fiscal year 2015, Congress only passed all twelve regular appropriations bills on time in four years – fiscal years 1977, 1989, 1995, and 1997. We’re on a CR now….

  3. We understand your thesis for your bear position, can you give us a bull thesis? I think it would be an interesting read. I double dog dare ya!

    • Bullish Thesis:

      Markets globally will continue to melt up due to central bank liquidity until some event creates negative animal spirits and we all panic and there is a mean reversion of 20-60% (depth depends on central banks buying stocks ETFs as that would minimize the crash, etc, etc). So for example, it is highly probable the markets will get the SP500 to the shiny rounded number of 3,500, because humans herd around shiny rounded numbers. Then to get the SP500 to the ultimate shiny rounded number of 4,000….that is only 14% more gain from 3,500 so somewhat possible. Now this needs to happen before the elections (huge political risks in Nov 2020), and the pandemic needs to clear up around April/May (or be hidden by MSM), and there has to be no real risk the Dems control all three branches of govt, and, and, and…. so yes, lots of “ands” needed to hit 4,000….

      So question becomes do you feel lucky? I find it easier to just do an old fashion thing called “Save money” by not “Spending money”. For example, I missed out on about 10% of last years gains, so I saved $100,000 (cash in bank) last year by spending less than normal. Everyone is so worried about making 10% on their $100,000-$300,000 “409k” accounts, yet it is soooooooooooooooooooooooo much easier to just save money and that is how most people get rich, by not spending their money. I put a bunch of cash into 3.1% CDs last year for 5 years (which I will put back into the market when we correct in the future), as my bankers think it is crazy as they believe in forever long stock market fairy tales. The first $100,000 cash I ever saved took years, yet by they time you hit a few million (not hard saving $100,000/year), you simple do not need to play in the market casino with any future risk, just play for fun! And boy, this a fun one! My condolences in advance to “WHEN”, not “IF”, this once in a lifetime “EVERTHING BUBBLE” implodes. Best to have a futures account if you are heavily invested as the futures is where all the price action happens on the ride up, and will be where the price action falls during the crash. The smart money is now in the process of creating the fear of missing, which lures the dumb money into the markets, you know, those 409kers. FOMO is one of the final steps, so only a few steps remaining…who could have seen it coming…=)

      Good luck with all your investments. Once you have more money than you need, it becomes easy to realize that time is the most precious life resource, and freedom to do what you want, when you want, how you want, and with who you want is priceless. In the end we all have an expiration date, regardless of the size of your 409k account…so what is another 10%, really???

      • Anon, I asked Sven a question, not you. Nobody cares what you think. And by the way I was up 75 percent in all my accounts only utilizing 70 percent of my capital. So much for your lousy 3.1 percent….wow. Sure hope inflation did not eat up any of your purchasing power….smdh.

        • According to our dear leader, every 409k account should have went up 100% last year, so sorry to hear your smaller 75% gain. Of course with the median 409k value at just $60,000, so a 100% gain will purchase a loaded F-150 so “yea!”? Take a chill pill…and go buy a truck.

  4. A Central Bank is a plank in the communist manifesto.
    Is it really surprising the market crashes when the so called “capitalist” are in power ?

    But hey, there is no right side of politics now any more, anyway. Republicans are the left. Democrats are the Alt left or insane left. Trump was a registered democrat before switching to the other side of the same coin. No matter who you vote for, you always get the government. Show me one government with the nation and people as their highest priority. I have never seen it.

    George Carlin. “Politicians are there to give you the illusion of choice. You have no choice. They own you.” “Its a big club, and you aren’t in it. You, and I, are not in, the big club.”

  5. “GREED IS GOOD”

    The unofficial motto of Wall Street

    But if any political party were to have had such a motto on its long-standing coat of arms, or these days instead elected a leader tweeting out about his self-created Dow Jones all time highs whilst his minions in the Treasury and Plunge Protection Team pressed buttons to manipulate markets during timely news conferences and appropriately spike everything into a bubble, which political party would be the more likely candidate, do you think?

    Then put that together with how Machiavelli might instantly recognize the modern American political, economic and financial systems:

    “Men are so simple and yield so readily to the desires of the moment that he who will trick will always find another who will suffer to be tricked”,

    … then anyone would believe that they live in the Greatest Economy of All Time, under the Greatest Governance of All Time, have Never Been Richer, and things can only get better.

    However, Machiavelli also points out the flaw of those that don’t really understand his ultimate conviction – in that what must be done must be so for the greater good, not the self, not for greed in and of itself:

    “We cannot attribute to fortune or virtue that which is achieved without either”.

    When one does so attribute falsely (eg, the “fortune” is not based on real economics, but on fake Fed funny “magic money” made from thin air, and the virtue based on selfishness or greed alone, as an end in itself) a crash is inevitable.

    Even Machiavellian analysis leads you there.

  6. Those who govern will always be associated and credited with current events. More mysterious is the group behavior of all the market participants and how that mood influences presidents and legislators. At market extremes, even the political elite become part of the crowd. I remember that at the 2000 stock market peak Clinton was open to exploring an option to let people move their Social Security benefit to some sort of 401K. At the top of the 2006 housing bubble Obama was passionate about every US citizen owning a home. Splitting from herd instincts is rare .

  7. What about 1973-74? Also, 1980-82. Those were two big ones to leave out of the sample. (Pres R, House and Senate both D.)

  8. Regretfully, looking at the date of a crash is about like saying the pilot did nothing wrong until the plane crashed into the fence when in truth the crash began long before.
    Market crashes don’t happen overnight, they require time. Any economist or historian that claims otherwise is either ignorant or tied into a group that is anti that party. Take the housing crash that happened most recently, it was set up by Bill Clinton’s removal of certain safeguards when getting federally insured home mortgages. The final straw was removal of income verification for mortgages, people bought homes they couldn’t afford and with the creative financing it took as long as 6 years for the homes to fall into default. What made it worse was the housing market demand drove prices up way beyond what they should have been & people took out equity loans to buy unbuilt houses to flip. Everybody wanted to become Donald Trump. So now they had their own house plus one or two more they couldn’t sell and all 3 went into default.
    Me? I was a Real Estate Appraiser when it all fell apart. I did everything from mobile homes to entire high-rise condominiums. Many of those I worked with kept on inflating prices, I didn’t. It became hard to get jobs when you are known for not saying it was a viable purchase at the asking price and even that some projects shouldn’t be started. One of the principals I worked for changed figures and removed part of a report I wrote then resubmitted it–cost the company the bank’s business. I was glad I wasn’t part of that but the company fired me because of their meddling.
    It is the same with the Wall Street Market crashes–overpriced stocks & companies. It doesn’t happen in even one or two years, but takes quite awhile. Someone does something & makes a killing and then everyone starts to do it, eventually killing not only that growth but also the base of the market.

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