With the Nasdaq hitting new all-time highs along with the Dow, which is now approaching 20,000, today one of the greats in the business takes a look at the 1930 economic collapse and traders worry this will be the next move by the “left wing conspiracy theorists.”
Today’s note from Art Cashin: On this day (-2) in 1930, American savers, the Federal Reserve and a Republican President all got a nasty surprise. The banking system had been shaky for a year or two but it looked like things might finally be beginning to stabilize. That is until today. On this day, a major financial institution, The Bank of the United States went belly up. And, with it went the savings, “in whole or in part”, of over 400,000 depositors. The Bank of the United States has been a historically unlucky name for several institutions. The first “Bank of the United States” was proposed by no less than Alexander Hamilton. It was a privately held central bank for the United States some 125 years before the Fed was created. It was very controversial as Southerners saw it as a boon and tool of the mercantile North while the South’s main industry, agriculture, didn’t need strong banking. The bank’s charter was allowed to expire and the bank disappeared.
Without a strong central bank, however, the young government had found it very difficult to finance the War of 1812. So, Congress proposed another Bank of the United States. This one succeeded for a while until Andrew Jackson and his Southern coalition determined to kill it. They succeeded and the result, many feel, was the Panic of 1837, one of the worst economic contractions in American history.
Now back to the other Bank of the United States.
In the early 1900’s, immigrants were pouring through Ellis Island and onto the streets of New York. A fellow immigrant and a very successful garment merchant realized they would need a place to put their meager earnings and savings. Perhaps to convey an image of governmental security or even an implied guarantee, he named his enterprise, “The Bank of the United Sates”.
As previously noted, when it went under it had over 400,000 depositors. They all began to scramble for money anywhere which tended to strain the other banks. The large New York garment industry was pushed to the edge and merchants desperately sought credit. Lines began to form at other banks. Soon the nation was sinking into the Depression.
To celebrate meet a couple of auditors at the Olde TARP Trust Lounge. Have a few perfect Rob Roys and explain that these days’ surprises are federally reserved for things like birthdays – not economic events. Crises, like dinosaurs, are now ancient history. Then have several more sips.
There wasn’t much sipping Monday (at least not during trading hours) but there was a bit of slipping as several indices took a pause in their multi-day rally to record highs.
A Bit Of A Political Puzzle – President-elect Trump has decided to go ahead with the nomination of Rex Tillerson for Secretary of State. No one doubts that Mr. Tillerson is enormously talented and capable, but several traders wonder about persisting in the nomination in the face of headlines about the alleged Russian intent to sway the election in favor of Mr. Trump and the allegations that Mr. Tillerson is close to Mr. Putin. Since Mr. Trump did not persist in pushing Mr. Giuliani and Governor Christi in the face of some political pullback, it is a bit puzzling to think he is willing to use up a lot of political capital on one nominee. Traders think the next step by the left wing conspiracy theorists will be kind of Manchurian Candidate scenario claiming that Putin not only “rigged” the election but had dominoes in place for when it happened.
So much for the hopes for an orderly, non-partisan transition. Looks like we’re back to trench warfare. Get ready.
Overnight And Overseas – In Asia, Japan and India rallied moderately while Chinese markets stabilized after Monday’s heavy selling. Europe is seeing bounces in most equity markets. Crude is rallying once again, while gold dips slightly as does the yield in the 10 year. The dollar firms slightly.
Consensus – Rally looks a tad tired. Look for resistance at S&P 2262/2265. Political infighting may begin to influence markets. Stick with the drill – stay wary, alert and very, very nimble.
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