17 years ago today

On September 18, 2007, the Fed made a 50bps rate cut, greater than expected, despite reasonably good economic data. Markets rallied for about 3 weeks, and SPX closed at an all-time high on October 9, 2007, which would not be matched again until March 2013 in recovery from the Great Financial Crisis.

On September 18, 2024, the Fed made a 50bps rate cut, greater than expected, despite reasonably good economic data. Markets rallied for about 3 weeks, and SPX closed at an all-time high today, October 9, 2024.

This is not financial advice nearly as much as it is anecdotal evidence that we live in the Matrix.

Other thoughts:

The Sahm rule stood at only 17bps as of the unemployment reading of September 2007, as opposed to 50bps in September 2024. Albeit, unemployment was generally higher right around 4.6-4.7% between late 2006-2007. Additionally, the part-time gig economy is MASSIVE today compared to 2007 (but BLS still counts that as not “unemployed”)

The VIX was hovering between 16-18 during the October 2007 market peak, compared to 20-22 today.

Year-over-year CPI change from December 2006 to December 2007 was 4.1%, so inflation was NOT dead when the Fed started their easing cycle. The bond market is implying a similar problem in today’s economy with increasing US treasury yields, although current YoY CPI readings are generally lower today than in 2007.

Unlike 2007, this is an election year, and I operate under the assumption that all current BLS statistics are not just cooked, but deep fried.

EDIT: Going to try to address some of the repeated comments I’m seeing here.

“PAST PERFORMANCE DOESN’T GUARANTEE FUTURE RESULTS”

Of course, the main point of this post was to highlight the similarities in timelines between today and 17 years ago. Our economic situation is MASSIVELY different, although I’d argue still weak.

“BUT THERE’S NO SUBPRIME CRISIS”

Right, probably not. However, we still have skyrocketing consumer credit defaults paired with an abysmally low personal savings rate. Additionally, we have something along the lines of $1 trillion CRE loans with balloon payments or adjustable rates kicking in within the next 6 months, on a bunch of loans that are underwater with their respective banks, and many of which have been collateralized into CLOs and sold both domestically and internationally. I still think there will be some blood in the water.

Additionally, the median house price to median income ratio is HIGHER today than it was at its 2007-2008 absolute peak, so I’d still argue that real estate has been over-speculated.

“THE GOVERNMENT WON’T LET THE MARKET CRASH DURING AN ELECTION YEAR”

Probably not! In fact, there’s a very real scenario where the Fed steps in with hyper-QE if things hit the fan. Congress is scheduled to meet in January 2025 to negotiate the current US debt ceiling, and the US frankly can’t afford a recession right now – they need those tax dollars. Hyperinflation to erode the real value of the US debt and prop up the markets is highly plausible IMO.

“DUMB BER”

Dumb bol.

“POSITIONS OR BAN”

I’m short term bullish on bonds. TLT just bounced off its 200 SMA twice and I wouldn’t be surprised to see investors eat up those nice high yields if earnings season goes sour. I have 6 figures on TLT calls expiring post-election, I’m gonna wait on SPX plays until the election is over.

TLDR: The Fed cut rates on the exact same date (9/18) in 2007 as 2024, and SPX hit an all-time high on the exact same date (10/9) in 2007 as 2024, except it was a massive crash afterwards in 2007. Trippy.