It was August 6, 1979.

That’s when Paul Volcker became chairman of the Federal Reserve.

At that time, the Federal Funds Rate (the interest rates banks charge each other) and inflation were both around 10%.

Within a year, interest rates had doubled. And inflation was around 14%.

Volcker took on inflation… He, beat it, … And he helped kick-start a stock rally that, with a few dips here and there, has lasted until today.

In fact, while interest rates and inflation were high, you could argue the early 1980s was the last time stocks were low.

Looking back, most folks consider Volcker a hero (although we’ll add a big caveat to that. More later).

While others talk about the recently ended 40-year bull market for bonds, few mention that we’re still in a 40-year-plusbull market for stocks.

But if the bond bull market has ended… is the stock bull market about to end too?

It’s a thought. Perhaps a worrying one.

We’ll explore that today and see where it leads us.

But before we get to that, let’s take a quick trip around today’s market action…

Market Data

The S&P 500 closed up 1.2% to end the day at 4,166.82… the NASDAQ gained 1.16%, to close at 12,789.48.

For individual stocks, Microsoft closed up 2.27% to $337.31… Apple ended higher by 1.23% at $170.29… and Tesla ended the day at $197.36, a 4.79% fall.

In commodities, West Texas Intermediate crude oil trades at $82.53… gold is $2,005.60 per troy ounce… and bitcoin is $34,359.30.

And now, back to our story…

A Legalized Monetary Protection Racket

Remember, interest rates peaked at 20% early on in Volcker’s tenure at the Fed.

After that, for the next 40 years, the trend for interest rates was down.

Of course, it wasn’t a straight line…

Interest rates went up and down several times as the economy grew and contracted. But overall, the trend was clear — interest rates were grinding lower, which meant higher and higher bond prices.

(Interest rates move inversely to bond prices. When bond prices move up, interest rates go down, and vice versa.)

The bull market in bond prices got so bad that in recent years, investors were willing to park their money in 10-year bonds for an interest rate of just 0.32%.

A ludicrously small return. Granted, that was right at the start of the Covid outbreak in 2020. Today, the 10-year yields 4.9%, or 15 times higher.

But when you’re the U.S. government, and you have a captive market… you can get away with it.

Many investors simply had (and still have) no choice but to buy government bonds. In the world of finance, Treasury bonds are considered the world’s only risk-free asset.

Banks, foreign central banks, bond funds, companies. To varying degrees, they each have an obligation or necessity to own bonds… whatever the price.

The bank failures earlier this year were in large part due to interest rates and bond prices. As for bond funds… what else do they buy, sell, and own, other than bonds?

In fact, if you want to be crude about it over the past 40 years, the government and Federal Reserve have gradually created little more than a legalized monetary protection racket.

Forcing bonds onto the market in return for providing protection to the market… Is it any wonder both bonds and stocks experienced a simultaneous bull market over that time?

But what about a protection racket for stocks? Do the same rules apply?

The answer is, mostly. In fact, they even have a name…

Forty Years of Forcing Rates Down

The “plunge protection team” (formally, the Working Group on Financial Markets, established by President Reagan in 1988) has been credited for making sure bad market drops don’t become catastrophic market crashes.

Looking back over the past 40 years, you can decide for yourself its level of success.

You can see how it has played out on the chart below (Thanks to Legacy Research’s newest analyst, veteran investor Chris Weber, for alerting us to this chart):


Since 1980, the stock market has mostly gone just one way — up. (Note we’ve used a log chart to better display rises and falls over time, which are hard to see when using a linear chart.)

Although, the “plunge protection team” couldn’t stop the dot-com collapse… or the 2008 Great Recession… or the 2020 Covid collapse… its actions (rightly or wrongly) prevented far steeper drops.

At least in the short-term. The long-term consequences are a different story. And that’s what’s in play right now.

Legacy Research colleague Teeka Tiwari argues the period from 2000–2008 was a pause in that bull market after the dot-com collapse and through the housing crisis. In which case, you’re looking at two separate bull markets from 1980.

But regardless, 40 years of forcing interest rates down… printing trillions… and allowing inflation to grow… have all had a direct impact on today’s market.

So what should we expect the market to do from here?

Is the 40-year bull market in stocks over? Just as the 40-year bull market in bonds is over?

We wish there was a simple answer to the question…

A Market for Stock Pickers

What we can tell you is this…

From our vantage point at the Daily Cut, looking across the full range of everything we publish at Legacy Research, one thing is clear.

Our senior analysts have different market views and different specialties. For instance, Teeka is the crypto and asymmetric investment guru, Chris Weber is a macro investing expert, Phil Anderson is a cycles and real estate specialist.

Despite those differences, they have some common ground.

That includes the belief that the next 3­–5 years will provide big opportunities and big threats for investors.

Chris Weber believes the best market action could already be behind us, and that it makes more sense to cut stock market exposure.

Phil Anderson says investors shouldn’t worry just yet. The current bull market likely still has another two to three years left to run. For Phil, he says the market will start to get “interesting” in 2025-2026. That’s when the real estate cycle enters its next phase.

If you feel that only helps to muddy the waters, rather than provide clarity, we sympathize.

In a truly free market, business and market cycles would be clear. You could judge individual stocks and the economy based on their performance. And you could invest accordingly.

But in a government- and central bank-manipulated market, you never quite know where (or when) the government or the Fed could intervene next.

Some market commentators have spent the past 30-40 years predicting the next bear market. They’ve mostly gotten the timing horribly wrong. We aren’t about to join them.

Instead, we’ll follow the sober and well-researched analysis of our team of Legacy Research experts and analysts.

The message we’re getting is that the end of the 40-year bond bull market in 2022 was an important milestone. And that higher rates will continue to affect stocks.

So, to provide as best a summary as we can, our message to you today is clear: Don’t sell all your stocks yet.

Even Chris Weber, our most bearish analyst, tells us he still has a 10% allocation to stocks.

But at the same time, this definitely isn’t a market for index investors. Just buying the S&P 500 or the Nasdaq is unlikely to get you far in this market.

Year-to-date, the S&P 500 is up around 8.5%. Much of that is due to the gains of the big seven tech stocks (Alphabet, Meta, Microsoft, Amazon, Tesla, Nvidia, and Apple). But they’re also the reason the same index is down around 9% from its August peak.

In other words, if you’re skeptical about big tech (and you’ve every reason to be skeptical), you should be skeptical about the index and its heavy allocation to tech.

This is a stock picker’s market.

That’s not to say big tech is dead. But if the past four months since the peak is anything to go by… the best chance for gains is likely to come from outside the market’s “big seven.”

That means putting in extra work to look for less obvious investment ideas.


Ask anyone about Paul Volcker’s greatest achievement, and they’ll tell you it’s his handling of the inflation problem of the late 1970s and early 1980s.

They’re less likely to tell you about his greatest blunder.

It was Volcker, as a senior adviser in the Treasury Department, who urged President Nixon to abandon the Bretton Woods system in 1971. That led to the U.S. to cut its final tie between the dollar and gold.

For that reason, we won’t join the ranks of those who adulate Volcker for his inflation-busting interest rate rises. After all, he was simply clearing up the mess he helped create in 1971…

And he may have made a bigger mess we’ll have to live through in the years ahead.

Unconnected Dots

Our main task at TheDaily Cut is to try to “connect the dots.”

That is, we help you figure out what things mean, why they’re important, the consequences of those events, and what they mean for you.

Sometimes, we see the individual “dots” but can’t yet figure out how they connect to anything. Maybe they never will connect to anything.

Regardless, if those unconnected dots feel as though they could be important, we’ll mention them here.

We’ll continue to ruminate on them, and maybe you’ll be able to draw your own conclusions.

Today’s unconnected dots…

  • Last week, we spoke to our in-house currency trading expert, Imre Gams. He told us, “Rates are at 2007 levels. Inflation is at 1980s levels. Monetary supply is off the charts. The Fed is raising interest rates to curb inflation. The government continues to spend like a drunken sailor. What does this mean for rates and the supposed ‘Fed pivot’?” We wonder the same thing… Will the Fed have to increase rates to 6%, 7%, 8%… more?

  • Earlier this month, the International Energy Agency published its World Energy Outlook 2023. It wrote, “In all scenarios, the momentum behind the clean energy economy is enough to produce a peak in demand for coal, oil and natural gas this decade, although the rates of post-peak decline vary widely.” Is this “peak oil”? Haven’t folks predicted this for 100 years? Haven’t they been wrong every single time? Is this time different?

  • Bloomberg writes, “Markets have grown more pessimistic about the outlook for U.S. economic growth, and if that continues in a substantial way, it may offer a chance to buy stocks, according to Goldman Sachs.” They say to never bet against the Fed. The same could be true of Goldman Sachs…

More Markets

Today’s top gaining ETFs…

  • KraneShares MSCI All China Health Care Index ETF +4.40%

  • VanEck ChiNext ETF +3.33%

  • Siren Nasdaq NexGen Economy ETF +2.72%

  • iShares MSCI Turkey ETF +2.29%

  • ProShares Ultra QQQ +2.18%

Today’s biggest losing ETFs…

  • SPDR S&P Semiconductor ETF -2.63%

  • Invesco Semiconductors ETF -2.01

  • Global X MSCI China Energy ETF -1.85%

  • Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF -1.60%

  • Invesco DB Commodity Index Tracking Fund -1.60%

In the mailbag:

Reader, Michele D. writes:

The most frustrating thing about Teeka’s information is it really doesn’t help someone like me. 72 years young, gets a pension and Social Security, under $30,000 per year. So, if bitcoin is running at $31,000 each, then it’s not doable. Neither is gold. They only deal in large quantities.

I do believe the digital dollar is coming. But I’ve been listening all year, and each month it’s the same: It could be next month.

If you really want to help, and have concerns for the American people, give us some info we can use without a subscription… I have one, but for me it’s not very useful. It just gets scarier. Thanks.”

Reply: We’re sure Teeka doesn’t mean to scare you. In fact, we’re sure that’s the opposite of his intentions.

But he does want to make sure his subscribers are fully aware and fully informed of what lies ahead.

Just to clear up a couple of points in your letter about investments that deal only in large quantities…

Although bitcoin is above $30,000, investors can buy fractional amounts. It’s possible to buy just $50 or $100 worth of bitcoin. Some investors dollar-cost average into it by buying small amounts per month to build up a stake over time.

It’s similar with gold. Some bullion firms will allow investors to buy gold in fractions of an ounce, or in grams. One gram of gold (about 0.032 troy ounces) costs $64 at the current spot price. Of course, your dealer will charge a mark-up, so for such a small size, you would likely pay closer to $100.



Kris Sayce
Editor, The Daily Cut