Stable Cons

Don’t be fooled by the allocation out of one expensive asset class into an even more expensive asset class. Bonds suck. And stocks are dangerously over-valued.

Friday, August 22nd, 2025

Laramie, Wyoming

By Dan Denning

He may never be Arthur Burns. But Jerome Powell is finally the man President Trump wants him to be. Powell all but abandoned the Fed’s commitment to a 2% inflation target. More importantly, for investors, he hinted that rate cuts could happen next month. He said that ‘the shifting balance of risks’ [to the employment market] ‘may warrant adjusting our policy stance.’

Stocks to the moon. At least in nominal terms.

Burns was Captain of the Fed’s ship during the great policy mistake of the 1970s. He argued the oil shock, unions, and too much government regulation were responsible for inflation. By the time inflation expectations were ‘anchored’ in the public’s mind–and by the time inflation was out of control–Burns was too late to realize monetary policy was the real culprit all along.

Paul Volcker had to clean up the mess by taking the Fed funds rate over 20% in June of 1981 (10-year and 30-year US bonds both yielded over 15% at the time and mortgage rates were over 18%, a level that would destroy the US housing market today). You wonder who’s going to have that job this time around. And you wonder how far stocks will fall when the punch bowl shatters on the ballroom floor. Maybe it’s already started to happen…