What If?

Tyler Durden's picture

The current rally off the 2009 lows is echoing rather strongly the surge off the 1982 lows and lining up uncomfortably close to the Black Monday Crash that took the S&P 500 down over 20% in 1987. Of course, it's always different this time; but the market's confidence that the Fed has your back and that computers are there to help not hinder leaves us with an uncomfortable feeling of deja vu all over again.

 

Away from the pure chart analog of human emotion, as the fed notes,

The macroeconomic outlook during the months leading up to the crash had become somewhat less certain.

 

Interest rates were rising globally.

 

A growing U.S. trade de?cit and decline in the value of the dollar were leading to concerns about in?ation and..

 

the need for higher interest rates in the U.S. as well.

 

Alan Greenspan assumed the role of Federal Reserve Chairman in August 1987, just a few months before the crash. (new Fed heads are always tested early)

Check, check, check (today), check, and check.

As Time summed up so well the 'coincidences'...

...all panics are essentially made of the same stuff. No matter how much the Street changes, there will always be a tug of war between overconfident traders armed with new hedging mechanisms and the regulators tasked with keeping them in check. Increasingly, humans will struggle with how to deploy computers to make markets more efficient without having those computers hijack the process. And central banks will walk a tightrope between protecting the public from economic calamity and distorting natural market mechanisms.

 

Sure, nobody will ever accuse Wall Street of being overly poetic, but even this industry full of hard-nosed capitalist does, on occasion, rhyme.