A little personal story about the Reagan Fed, but, first, some meat.

It has been 40 tradings days — wow, time flies — since Donald Trump’s surprise victory  in the 2016 Presidential election.  We posted a piece on New Year’s Day looking at the Reagan-Trump S&P500 analog noting,

The Reagan-Trump Analog is completely useless, in our opinion, as the relative  macroeconomic initial conditions at the advent of their two Presidencies are entirely different.   Nevertheless,  a fun tracking exercise and we do expect a little more give back in the S&P500 in the next month.  We don’t expect the almost 30 percent high-to-low give back in the first year and half of the new Administration. – GMM

The global liquidity conditions are so much different than when Reagan took office as the effective Fed Funds rate was hovering around 20 percent back then.  Central banks have now injected massive amounts of liquidity into the financial markets to keep the global economy from a debilitating deflationary recession.  It has got to go somewhere (out of excess banking reserves) as the world’s economies recovery.    The train wreck may come when credit really begins to expand and central banks panic and try to reverse what they have done.   Don’t see it in the near term, however, but keep it on your radar.

Nevertheless. we are still tracking Reagan-Trump analog.  It turned up this week from a small sell-off as did the Reagan S&P on the 39th trading day.  The Trump S&P is now outperforming the Reagan S&P by 1.26% 40 trading days into their respective President-elect titles.

If the Reagan S&P is prologue,  we will see three more up days, with the S&P500 1.3 percent higher at next Monday’s close,  then some profit taking.

Analogs are like stock market gurus, preachers, prophets, and  prognosticators, which are like  straws we grasp at and flock to when trying to look into the future.  Simply because nooooobody knows the what the future holds with any degree of certainty.

Fun, though.  Wouldn’t trade on it.

Personal Story
Can’t remember the exact year, probably 1985,  I was a graduate student interviewing at the Federal Reserve Board in their international division.   Upon entering the building I was met with, what was back then,  extreme security.   I was kind of surprised.  No security measures in hardly any of the other Federal government buildings in Washington at the time (mid-1980’s).

When I arrived upstairs, I asked my prospective bosses,  “why the tight security?”

They replied that during the days of tight monetary policy and ultra high interest rates,  farmers and other disaffected Americans would enter the building threatening the then Fed Chairman, Paul Volcker.  A few were even caught wondering the halls of the FRB with guns!  Yikes.

What also stands out from that interview was the tour that I was taken on of the Federal Reserve Board building on Constitution Avenue, which included a gym (I believe) and racquetball courts.  Posh settings.  We didn’t have this at the GAO, for example.

The young economists giving me the tour explained the Fed was quasi-private,  known as “Club Fed” in government worker circles, and was profitable and actually returned  a surplus to the U.S. Treasury.   And this was way before the System Open Market Account (SOMA), where the QE assets are held.   Nice!