"1929-1937 period vs 2008-2018:"

   In both cases, the financial crisis caused interest rates to go to zero, forcing central banks to print money to buy financial assets. The resulting asset market rallies drastically increased wealth disparity between rich and poor. [My comment: The reaction by politicians triggered rate hikes, plus the wealth disparity is not an issue because a rising tide lifts all boats, thus people across the board are better off. Technology has made a massive impact over the last 50 years and continues to accelerate in terms of quality of life in the U.S.]

·       Political polarization between left and right occurred globally, and populist/progressive movements popped up everywhere. In the 1930s, populism led to nationalist dictatorships in Italy, Spain and Germany. [My comment: Populism by itself is not the issue but the leftist, progressive thinking which sounds great in theory but often leads to socialism, fascism, and a lower tide for all.]

·       Japan was the China of the 1930s, a rising global economic power. The global response were trade restrictions and eventually an oil embargo. [My comment: Trump is a businessman so does not want to create waves that cause a steep drop in the stock market. Of course, this situation remains in flux.]

·       In 1937, the Fed began tightening monetary policy – U.S. unemployment jumped from to 19 per cent and manufacturing fell by 37 per cent from peak. The Dow Jones Industrial Average cratered -50.2% per cent. [My comment: the situation today is different from 1937. 1937 did not have strong pro-business policies in place as we have today. Instead, we had a socialist government in place (New Deal, etc) which hamstrung many businesses.]

The US devalued the dollar by 41% in 1934 in the throes of the Great Depression. But today's situation is not the same. While Trump’s policies have greatly helped, they have also increased the deficit to more than $1 trillion this  year but a material part of this is Obamacare which has yet to be repealed. That said, are the existing bubbles broad enough to affect the stock market should any or all of these bubbles blow apart? It is claimed the current U.S. household wealth bubble will end the way the last several asset and wealth bubbles did- by The Fed ending loose monetary conditions that caused the bubble in the first place. But this is wrong. Utopian affirmative action with ninja type loans and the equivalent where most anyone would qualify for a home loan created a monstrous real estate bubble which blew apart in 2008. There is arguably no such bubble today, though there are many smaller bubbles, some which I will discuss in a future report, but none sufficiently endemic to cause a replay of 2008. 

Nevertheless, the perception is that the higher the Fed hikes rates, the closer we get to the end of the road. Dalio recently said the rate hikes are now hurting asset prices. Adding fuel to the fire is the quantitative tightening policy which shrinks the balance sheet by $40 billion a month. But the question remains how fast GDP can continue to grow to offset rising rates. If GDP can continue to grow, then this ageing bull market will head higher once again, especially given the still near-record levels of global QE still in place as global economies remain weak thus have no choice but to continue to print.