New Bull Run Around the Corner?

This is when it'll happen...

Posted January 30, 2023

Dear Outsider,

When the U.S. ratified the Constitution in 1789, the new American government created a permanent Treasury Department in order to control the nation’s debt.

President George Washington named Alexander Hamilton as the Secretary of the Treasury, and he proposed reviving the nation’s ailing economy and repairing its damaged credit by repaying its $75 million of war debt.

Hamilton's first step was to establish a centralized monetary institution, including the national bank.

Just three years later, the country found itself in a debt panic, the Panic of 1792.

This led to the creation of the stock market as we know it today.

On May 17, 1792, 24 stockbrokers and merchants gathered under a buttonwood tree outside 68 Wall Street to sign the Buttonwood Agreement, a document that would set the foundation for the New York Stock Exchange.

Revered as one of the most influential financial documents in history, the Buttonwood Agreement sought to stabilize the securities market after the aforementioned Panic of 1792, a two-month financial credit crisis during which prices of U.S. debt securities and bank stocks fell, eventually resulting in a bank run.

The agreement proposed the creation of a system in which brokers and merchants would trade only with each other and for a set commission per transaction. The contents of the document are short but sweet:

We the Subscribers, Brokers for the Purchase and Sale of the Public Stock, do hereby solemnly promise and pledge ourselves to each other, that we will not buy or sell from this day for any person whatsoever, any kind of Public Stock, at a less rate than one-quarter percent Commission on the Specie value and that we will give preference to each other in our Negotiations. In Testimony whereof we have set our hands this 17th day of May at New York, 1792.

By creating a membership-only exchange, the signers set up the beginnings of an investment community we now refer to as Wall Street...

Fast-forward about a century to October 1907, and the U.S. once again found itself in a debt crisis after the stock market lost 50% of its value, wreaking havoc on the banking system that was issuing “call loans” to stock brokers, which created a fragile system of brokers loaning the cash to investors speculating in the markets.

We can see that neither the Treasury nor Wall Street accomplished their goal of preventing financial disasters.

In fact, on average, nationwide panics have occurred every 15 years since the founding of the country.

That’s why some of the richest and most influential men in the U.S. came up with a secret plan to create a centralized, government-backed reserve banking system to fix this thing once and for all, including one very important number that affects us all to this day...

The Federal Reserve: A Modern-Day Jekyll and Hyde

In November 1910, six men boarded a private train car in New Jersey under the guise of a duck-hunting trip.

They were embarking on a mission so secretive that they were instructed to only call each other by their first names...

Nelson, Henry, Frank, Paul, Piatt, and Arthur became known as the “First Name Club,” and they were headed to a secluded island off the coast of Georgia called Jekyll Island.

The meeting was likely arranged by J.P. Morgan, a member of the private Jekyll Island Club, known as “the richest, the most exclusive, [and] most inaccessible” club in the world.

We’re talking about members of the crème de la crème of U.S. high society: Morgan, Field, Vanderbilt, etc.

The mission was simple: Reform the nation’s banking system.

After tireless days and sleepless nights, what came out of the gathering was called the Reserve Association of America, where the U.S. would have one central bank with 15 branches across the country.

According to the Federal Reserve History website:

The branches would be responsible for holding the reserves of their member banks; issuing currency; discounting commercial paper; transferring balances between branches; and check clearing and collection. The national body would set discount rates for the system as a whole and buy and sell securities.

Under President Woodrow Wilson, Congress passed the Federal Reserve Act in 1913, and the rest is history.

However, this didn't prevent financial disasters.

The last bank run occurred only 14 years ago during the 2008 financial crisis.

John Tuld, a character based on then Lehman Brothers CEO Richard Fuld and Merrill Lynch CEO John Thain, said it best in the 2011 thriller Margin Call:

It’s just money. It’s made up. Pieces of paper with pictures on it so we don’t have to kill each other just to get something to eat. It's not wrong. And it’s certainly no different today that it’s ever been: 1637, 1797, 1819, 1837, 1857, 1884, 1901, 1907, 1929, 1937, 1974, 1987... '92, '97, 2000... It’s all the same thing over and over. We can’t help ourselves. And you and I can’t control it or stop it or even slow it... We just react. And we make a lot of money if we get it right.

Time and again, U.S. markets have crashed, wiping out millions and now trillions of dollars of wealth.

What we experienced in 2022 will go down in history as one of the worst periods for the stock market.

All the uncertainty, the manipulation, the lies...

And like all good bureaucracies, the Fed has kept growing to try to counter these economic woes.

It’s now the most powerful economic entity in the world because it controls one important number.

And if we keep track of it, we’ll know the exact moment the market will turn around and enter a new bull market...

The Critical Pivot

Today, the Fed comprises two parts: the Board of Governors and the Federal Open Market Committee (FOMC).

We’re only concerned with the FOMC for our investing purposes, as it’s responsible for open market operations.

The FOMC meets eight times a year, and, since 1977, it’s operated under a “dual mandate.”

But it really has three main goals.

First, it wants to keep prices stable.

Second, it attempts to maximize economic output while maintaining stable employment numbers.

And finally, it tries to avoid high inflation or deflation.

Right now, the Fed is focused solely on inflation.

And even though inflation is coming down, it's still red hot, so consumers won't feel the positive effects until months after the fact.

That’s why the Fed has kept dramatically increasing the fed funds rate to combat inflation.

Now, the fed funds rate is simply the interest rate at which banks lend money to each other.

High rates equal falling stock prices...

Low rates equal rising stock prices...

Raising rates essentially adds an extra tax to anyone who uses the U.S. dollar, which is the entire world!

High rates also make it more expensive to borrow, which lowers the money supply and, in theory, brings down inflation.

In order to measure that inflation, the Fed carefully studies one economic measure above all else...

It's this important number that will spark what we're calling the "critical pivot" — the exact moment the market turns around and enters the next bull run.

And we think it could be right around the corner...

That's why I've created an urgent investor presentation detailing the moment stocks could reverse to the upside.

I've opened up free access to it right here.

I urge you to watch it before it's too late.

Stay frosty,

Alexander Boulden
Editor, Outsider Club

After Alexander’s passion for economics and investing drew him to one of the largest financial publishers in the world, where he rubbed elbows with former Chicago Board Options Exchange floor traders, Wall Street hedge fund managers, and International Monetary Fund analysts, he decided to take up the pen and guide others through this new age of investing. Check out his editor's page here.

Want to hear more from Alexander? Sign up to receive emails directly from him ranging from market commentaries to opportunities that he has his eye on. 

Heal Your Ailing Portfolio Body