Out With the Old in With the New?

Out With the Old in With the New?

by Zach Marsh on Oct 18, 2019

Some historians would argue that the 20th century didn’t truly begin until August 1914.  On June 28, 1914 the Archduke Franz Ferdinand of the Austro-Hungarian Empire was assassinated in Sarajevo setting into action events that would lead to World War I five weeks later.  When the armies of Russia, Germany, France, Great Britain, and Austria-Hungary took the battlefield in August most of the citizens of these countries expected the war to be a short affair and that their sons would be home by Christmas.  But that illusion was shattered immediately when the death and destruction of the Battle of the Frontier in Belgium and France welcomed the world to the death, destruction and despair that would become the theme of the 20th century as a whole and 20th century warfare in particular. 

What transpired in the Great War was a clash of 19th century morals and attitudes with 20th century technology and weaponry--and technology and weaponry won out. I bring this up because I wonder if the 21st century, too, has begun 14-15 years late.  But the battlefield I’m thinking about is taking place in financial markets, with the traditional combatants being bull vs bear.  The question that should begin to creep into people’s minds is:  have bear markets become passé?  Or, more precisely, has the Fed and world central bankers discovered the cure for falling asset prices? 

A New World Order?

At the pinnacle of all bull markets begins the talk of “this time it’s different.”  The idea begins to take hold, that all of the times before in which bull markets faded and fell are yesterday’s problems, and today it’s different because….(fill in the blank).  In 2000, it was different because we had never seen a revolution like the “Tech revolution.”  In 2007 it was housing, and the belief was that housing prices are local, and prices can’t fall across the country.  We also crazy prices in oil in 2007-08 with the belief that we had reached “Peak Oil,” that the world’s untapped oil reserves were heading to zero.  Each bull market finds a narrative to justify the elevated levels at which the assets are trading.  “It’s not crazy because XY&Z is happening.” 

As we sit here today, we are almost 11 years into a long, pseudo-interrupted bull market.  Each time, during this long run, that the market looks headed for trouble world central bankers rally together to get the market back on its feet and running again.  Some call this the “Fed put,” implying that the Federal Reserve will always backstop the market and keep it moving ahead.  Much of this work has been accomplished via the purchasing of assets, namely government bonds, as a means of pumping money into the financial system.  This process is called Quantitative Easing, and there have been multiple stages of it.  QE1 began in December 2008, at the depths of the financial panic, and lasted until March 2010.  The second quantitative easing, QE2, lasted seven months, from November 2010-June 2011.  QE3 began in September 2012 and lasted only 3 months. 

Like a war each of these QE’s can be viewed like battles, or assaults, attempts to push back against the attack or potential of falling asset prices.  Like the Western Front in WWI, where battles were interspersed by continual trench fighting, inter-quantitative easing periods were still marked by maintaining asset purchases, but just not increasing levels.  Sort of like the image of trenches just holding the line.  Each QE period proved successful at one thing getting the stock market to go higher.  Below is a table showing the periods and results.



S&P Performance During Program

S&P Performance Between Phases or 12 Months After (whichever is shorter)














You can see that periods of attack were clearly effective at pushing markets higher.  However, beginning in October 2014 the Fed began what it referred to as “tapering,” which was essentially the ending of future asset purchases.  Essentially the Fed just began to allow the bonds it had previously purchased to mature and did not replace them with further purchases.  A wartime equivalent of this would be like when the US pullback in Iraq and Afghanistan, expecting or hoping that the local troops would takeover.  The Fed was basically saying, “Ok, market, now it’s time to go on your own.”  And similar to the war experiences in Iraq and Afghanistan, the market buckled. 

During the first 15 months of tapering the market fell 8.2%, it appeared if the house of cards was about to fall.  It appeared as if the market would not be able to stand on its own, without massive support from the central bankers.  However, in March 2016, the European Central Bank stepped in and picked up where the Federal Reserve had left off.  They began increasing their monthly bond purchases and the market responded positively.  From March 2016-January 2018 the market rallied 38%, reflexively.  But in 2018, on the back of several rate hikes by the Fed and ECB tapering, the stock market again performed poorly. 

The central banks have responded to last years temper tantrum by the market and have begun cutting interest rates and the markets have been pacified.  Now the Fed is launching another asset purchase program, similar in nature to QE, but one that Chairman Powell refuses to call QE.  Either way, the central banks still seem hellbent on backstopping the stock market/economy.  Perhaps, they believe that they have re-written the old rules of centuries past, that economies and markets must naturally contract.  Maybe they believe that they can build an unsinkable ship, much like that other ship which met its doom only 2 years before WWI broke out.  I, myself, remain skeptical and will keep my 20th century beliefs in the business cycle.  After all as William Faulkner said, “The past is never dead.  It’s not even past.”    








All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.  Tax laws are complex and subject to change. Calibrate Wealth LLC, does not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Calibrate Wealth. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.


This material does not provide individually tailored investment advice. It has been prepared without

regard to the individual financial circumstances and objectives of persons who receive it. The strategies

and/or investments discussed in this material may not be suitable for all investors. Calibrate Wealth

recommends that investors independently evaluate particular investments and

strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a

particular investment or strategy will depend on an investor’s individual circumstances and objectives.

Investing in commodities entails significant risks. Commodity prices may be affected by a variety of

factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii)

governmental programs and policies, (iii) national and international political and economic events, war

and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities

and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary distortions or other

disruptions due to various factors, including lack of liquidity, participation of speculators and

government intervention.


Foreign currencies may have significant price movements, even within the same day, and any currency

held in an account may lose value against other currencies. Foreign currency exchanges depend on the

relative values of two different currencies and are therefore subject to the risk of fluctuations caused by

a variety of economic and political factors in each of the two relevant countries, as well as global

pressures. These risks include national debt levels, trade deficits and balance of payments, domestic and

foreign interest rates and inflation, global, regional or national political and economic events, monetary

policies of governments and possible government intervention in the currency markets, or other