Cometh the Most Terrifying Bull

This week’s drama in the financial markets will be one for the history books.

For starters, the combined valuation of the U.S. stock market has never been higher — not in the Roaring ’20s, not in the dot-com bubble, not in the meme stock mania.

Turn Your Images On

We are now at levels that surpass both 1929 and 2000.

And just as the tower of cards wobbles on the table, Jerome Powell has decided to shuffle the deck.

On Friday, Fed Chair Powell signaled that the balance of risks had “shifted.” Or in more crass terms, he “caved”:

Turn Your Images On

Inflation may still be running hot, but the bigger fear now is unemployment.

In his words, the labor market is “unusually balanced” — meaning both supply and demand have slowed, and the downside risk to jobs could hit fast.

That’s the polite way of saying layoffs are already showing up in the data.

So, Powell has caved.

He’s all but confirmed a rate cut for September 17. Not because inflation is back at the Fed’s 2% target (it isn’t). However, 258,000 jobs just vanished from the books after the BLS revised its spring reports. Year-to-date, the revisions total 461,000 — roughly the population of Scottsdale, Arizona.

The labor market is cracking. AI surely plays a role. Tariffs, too. The suspension of small package shipping by DHL, FedEx and other carriers over new de minimis regulations from Europe and elsewhere isn’t going to help.

Turn Your Images On

Bad timing: The Bureau of Labor Statistics is systematically losing credibility as a source of accurate employment data.
(Source: BLS, Bloomberg.)

So here’s the irony: the Fed is preparing to cut into inflation.

Core CPI is above 3%. July Producer prices, posted on August 14, reveal their most significant monthly jump since 2022. That’s 53 straight months of inflation above 2%.

And the market loves it.

The Fed’s Mandate — Now Tilted

The Fed has always had a “dual mandate”: price stability and maximum employment.

Since 2021, Powell & Co. has leaned heavily on fighting inflation.

Now, with Trump breathing down his neck (and already musing aloud about naming Powell’s successor “fairly soon”), the Fed has pivoted. Employment trumps inflation.

This is no slight shift.

It’s confirmation that rate cuts are coming — not because inflation is solved, but because political and labor pressures are mounting. Powell’s term ends in eight months. His successor, chosen by Trump, will be under orders to cut deeper.

What History Tells Us

Markets have seen this setup before. When the Fed cuts rates within 2% of market highs, the S&P 500 almost always rallies.

In fact, the S&P gained an average of 13.9% over the next 12 months in 20 of the last 20 times this happened.

That’s why we are calling this the “most terrifying bull market in history.”

Stocks, real estate, even crypto — all benefit when the Fed feeds liquidity into a hot market. Look at the scoreboard:

Bitcoin: up 450% in under three years
Gold: up 105% in the same period

During a crack-up boom, these are more than defensive assets. They’re leading indicators. The market knows inflation is here to stay. And asset owners are trying to beat it.

Echoes of the 1970s

The last time the Fed cut rates into rising inflation was in the 1970s — a decade remembered for oil shocks, double-digit CPI, and Volcker’s eventual 20% rates.

Turn Your Images On

An overlay of the Fed’s current bout with inflation and the pattern established in the 1970s (source: Kobeissi Letter)

It’s too early for us to call a repeat of 15% inflation, but the dynamic is eerily similar. Stimulating demand when prices are already elevated only makes them hotter.

Meanwhile, the government spends nearly $600 billion a month, and the annual interest payments on its existing debt are now at $1.2 trillion.

The White House chants “make the foreigners pay” with tariffs, but the math says otherwise: by October, businesses will have passed most of those costs onto consumers.

It’s no wonder consumer sentiment is scraping crisis lows.

Why Bulls Outlast Bears

It’s counterintuitive, we admit.

But if you own assets, you’re in the club.

The wealth gap widens because wages never catch up to asset inflation. For the uninvested, this is painful. For asset holders, it’s a party.

Turn Your Images On

Bull and bear market lengths since the modern era began following the cessation of hostilities in World War II and the beginning of the Bretton Woods global reserve status for the U.S. dollar. (Source: Charlie Billelo).

History is clear: bull markets last about five times longer than bear markets.

Bulls: +254% over five years
Bears: –31% over one year

Compounding builds wealth. Interrupting it destroys it. And right now, Powell is signaling that the music isn’t about to stop — at least not yet.

Asset owners will party like it’s 2021.

Can we still see a massive correction in AI tech leaders on the S&P 500 with all this going on? Absolutely. That’s what makes this a historic market. And a most terrifying one at that.

The question remains: Will the bond vigilantes crash the dance by demanding higher yields on Uncle Sam’s ballooning debt?

Until then, we’ll need to be prepared. “We’ve been a fan of cash, but if aggressive interest rate cuts are about to happen, long-dated bonds could see their prices soar in the coming months,” notes our Portfolio Director Andrew Packer. “Not to mention the fact that a rising global M2 money supply remains the most bullish for gold.”

~ Addison

P.S.: We’ll dig deeper into this at Grey Swan Live! this Thursday.

Our friend Andrew Zatlin, who Bloomberg has rated as the #1 labor market analyst for the past several years, has been warning about labor market “cracks” long before Powell admitted them.

And not just because of the headline-grabbing revisions by the BLS.

Zat’s view: revisions and layoffs are just the first tremors.

What happens when the quake hits? Join us — you’ll want to hear it. Zatlin will go into how he’s become the #1 labor market analyst – and all the data, both domestic and international – that can give you better insight into what’s really happening in the global economy.

Your thoughts? Please send them here: addison@greyswanfraternity.com.

This week’s drama in the financial markets will be one for the history books.

For starters, the combined valuation of the U.S. stock market has never been higher — not in the Roaring ’20s, not in the dot-com bubble, not in the meme stock mania.

Turn Your Images On

We are now at levels that surpass both 1929 and 2000.

And just as the tower of cards wobbles on the table, Jerome Powell has decided to shuffle the deck.

On Friday, Fed Chair Powell signaled that the balance of risks had “shifted.” Or in more crass terms, he “caved”:

Turn Your Images On

Inflation may still be running hot, but the bigger fear now is unemployment.

In his words, the labor market is “unusually balanced” — meaning both supply and demand have slowed, and the downside risk to jobs could hit fast.

That’s the polite way of saying layoffs are already showing up in the data.

So, Powell has caved.

Turn Your Images On

Bad timing: The Bureau of Labor Statistics is systematically losing credibility as a source of accurate employment data.
(Source: BLS, Bloomberg.)

So here’s the irony: the Fed is preparing to cut into inflation.

Core CPI is above 3%. July Producer prices, posted on August 14, reveal their most significant monthly jump since 2022. That’s 53 straight months of inflation above 2%.

And the market loves it.

The Fed’s Mandate — Now Tilted

The Fed has always had a “dual mandate”: price stability and maximum employment.

Since 2021, Powell & Co. has leaned heavily on fighting inflation.

Now, with Trump breathing down his neck (and already musing aloud about naming Powell’s successor “fairly soon”), the Fed has pivoted. Employment trumps inflation.

This is no slight shift.

What History Tells Us

Markets have seen this setup before. When the Fed cuts rates within 2% of market highs, the S&P 500 almost always rallies.

In fact, the S&P gained an average of 13.9% over the next 12 months in 20 of the last 20 times this happened.

That’s why we are calling this the “most terrifying bull market in history.”

Stocks, real estate, even crypto — all benefit when the Fed feeds liquidity into a hot market. Look at the scoreboard:

Bitcoin: up 450% in under three years
Gold: up 105% in the same period

During a crack-up boom, these are more than defensive assets. They’re leading indicators. The market knows inflation is here to stay. And asset owners are trying to beat it.

Echoes of the 1970s

The last time the Fed cut rates into rising inflation was in the 1970s — a decade remembered for oil shocks, double-digit CPI, and Volcker’s eventual 20% rates.

Turn Your Images On

An overlay of the Fed’s current bout with inflation and the pattern established in the 1970s (source: Kobeissi Letter)

It’s too early for us to call a repeat of 15% inflation, but the dynamic is eerily similar. Stimulating demand when prices are already elevated only makes them hotter.

Meanwhile, the government spends nearly $600 billion a month, and the annual interest payments on its existing debt are now at $1.2 trillion.

The White House chants “make the foreigners pay” with tariffs, but the math says otherwise: by October, businesses will have passed most of those costs onto consumers.

It’s no wonder consumer sentiment is scraping crisis lows.

Why Bulls Outlast Bears

It’s counterintuitive, we admit.

But if you own assets, you’re in the club.

The wealth gap widens because wages never catch up to asset inflation. For the uninvested, this is painful. For asset holders, it’s a party.

Turn Your Images On

History is clear: bull markets last about five times longer than bear markets.

Bulls: +254% over five years
Bears: –31% over one year

Compounding builds wealth. Interrupting it destroys it. And right now, Powell is signaling that the music isn’t about to stop — at least not yet.

Asset owners will party like it’s 2021.

Can we still see a massive correction in AI tech leaders on the S&P 500 with all this going on? Absolutely. That’s what makes this a historic market. And a most terrifying one at that.

The question remains: Will the bond vigilantes crash the dance by demanding higher yields on Uncle Sam’s ballooning debt?

~ Addison

P.S.: We’ll dig deeper into this at Grey Swan Live! this Thursday.

Our friend Andrew Zatlin, who Bloomberg has rated as the #1 labor market analyst for the past several years, has been warning about labor market “cracks” long before Powell admitted them.

And not just because of the headline-grabbing revisions by the BLS.

Zat’s view: revisions and layoffs are just the first tremors.

Your thoughts? Please send them here: addison@greyswanfraternity.com.

Trump and Powell are no buddies. They’ve been fighting over rate cuts all year—Trump demanding more, Powell holding back. Even after cutting twice, Trump called him “grossly incompetent” and said he’d “love to fire” him. The tension has been building for months.

And Trump now seems ready to install someone who shares his appetite for lower rates and easier money.

Trump has been dropping hints for weeks—saying on November 18, “I think I already know my choice,” and then doubling down last Sunday aboard Air Force One with, “I know who I am going to pick… we’ll be announcing it.”

He was referring to one Kevin Hassett, who—according to a recent Bloomberg report—has emerged as the overwhelming favorite to become the next Fed chair.

Here we sit — investors, analysts, retirees, accountants, even a few masochistic economists — gathered beneath the leafless monetary tree, rehearsing our lines as we wait for Jerome Powell to step onstage and tell us what the future means.

Spoiler: he can’t. But that does not stop us from waiting.

Tomorrow, he is expected to deliver the December rate cut. Polymarket odds sit at 96% for a dainty 25-point cut.

Trump, Navarro and Lutnick pine for 50 points.

And somewhere in the wings smiles Kevin Hassett — at 74% odds this morning, the presumed Powell successor — watching the last few snowflakes fall before his cue arrives.

With U.S. stocks trading at about 24 times forward earnings, plans for capital growth have to go off without a hitch. Given the billions of dollars in commitments by AI companies, financing to the hilt on debt, the most realistic outcome is a hitch.

On a valuation basis, global markets will likely show better returns than U.S. stocks in 2026.

America leads the world in innovation. A U.S. tech stock will naturally fetch a higher price than, say, a German brewery. But value matters, too.

As copper flowed into the United States, LME inventories thinned and backwardation steepened. Higher U.S. pricing, tariff protection, and lower political risk made American warehouses the most attractive destination for metal. Each new shipment strengthened the spread.

The arbitrage, once triggered, became self-reinforcing. Traders were not participating in theory; they were responding to the physical incentives in front of them.

The United States had quietly become the marginal buyer of the world’s most important industrial metal. China, long the gravitational center of global copper demand, found itself on the outside.

And Trump now seems ready to install someone who shares his appetite for lower rates and easier money.

He was referring to one Kevin Hassett, who—according to a recent Bloomberg report—has emerged as the overwhelming favorite to become the next Fed chair.

Spoiler: he can’t. But that does not stop us from waiting.

Tomorrow, he is expected to deliver the December rate cut. Polymarket odds sit at 96% for a dainty 25-point cut.

Trump, Navarro and Lutnick pine for 50 points.

And somewhere in the wings smiles Kevin Hassett — at 74% odds this morning, the presumed Powell successor — watching the last few snowflakes fall before his cue arrives.

On a valuation basis, global markets will likely show better returns than U.S. stocks in 2026.

America leads the world in innovation. A U.S. tech stock will naturally fetch a higher price than, say, a German brewery. But value matters, too.

The arbitrage, once triggered, became self-reinforcing. Traders were not participating in theory; they were responding to the physical incentives in front of them.

The United States had quietly become the marginal buyer of the world’s most important industrial metal. China, long the gravitational center of global copper demand, found itself on the outside.