As the S&P 500 and Dow Jones press up against all-time highs, market prognosticators are split on whether we should expect a melt down or melt up in equity prices. In a recent interview on RealVision, Kevin Muir of The Macro Tourist and Tony Greer of TGMacro discuss the current market environment and delve into MMT (Modern Monetary Theory). In the quote below, Muir likens the present state of the markets to 1998-1999.
“And I really believe that this might be way more like 1998 than anyone imagines. And this is my kind of scenario that I think is being underpriced by the market, let’s say. Because in 1998, with the Long Term Capital [Management] problems, we actually also had a 3-month 10-year that went inverted. And it kind of bounced off that as Greenspan [eased] . . . But I would argue that Powell has also eased– just like Greenspan did. He didn’t ease by actually going and reducing rates, but he eased by changing forward guidance, and by doing a lot of things. So to me, I look at it, and I say, hey, this could be just like 1998, where the Fed then was way too easy and sowed the seeds for the bubble of 1999 and 2000. Because don’t forget, that’s when the market really took off.”
Muir’s observation is one I hadn’t really considered, so I researched the performance of the S&P 500, the US dollar, gold, and oil during 1999 specifically, and posted my findings in the graphic above. I find it interesting that the dollar rose dramatically along with equities and oil in a period of moderate inflation, while gold underperformed. There is a tendency among market participants to assume that outperformance of oil and equities are tied to a weaker dollar, and that a strong dollar is bearish for each. While this might be true over a longer time horizon, it is not always true in the short term.
It was also worthwhile to note that gold underperformed core inflation in what was a historic “risk-on” environment.