”Every bull market ends with a Fed policy mistake—it’s just the way it is. Evidence is mounting that we may be on the cusp of that policy mistake, as it appears the Fed has overestimated the strength of the economy amidst several headwinds,” Tom Essaye, president of the Sevens Report wrote in a Wednesday note to clients.“
What was that again?
“Every bull market ends with a Fed policy mistake—it’s just the way it is.“
Flat out wrong.
Why? The word “mistake” is not a mere factual observation, but invokes a value judgment. Not only did it happen but it was wrong. To claim that “that’s just the way it is”, is to assert that the writer is just stating a fact. Mr Essaye seems to think that his opinion on a Fed policy should be taken as fact.
Based on what? Because a bull market ended whatever caused it must be wrong? Okay, so the only right thing for stock prices to do is go up. If they go down, it’s wrong. The Fed’s job is to ensure that stocks don’t do that. There’s a whole slew of assumptions behind a statement like that. No possibility reasonable people could disagree?
In the centuries that markets have existed, none have been permanent bulls free of declining prices. And though it may come as a surprise to Essaye, that includes centuries in which there was no Fed. And nothing in the Fed’s charter says its job is to ensure that stock prices only goes up.
So the evidence for his assertion that the end of a bull market represents a Fed “mistake” is … well … zilch.
And what if the Fed intended to let some air out of stock prices? You may not like it, but to call it an error is another thing.
This is not really to single out Essaye … it’s common for financial media types to casually toss around the word “mistake” to connect Fed policy with a decline in stock prices. This just happens to be especially egregious with the added claim that “it’s just the way it is”.