What does it mean when a new book, “1929,” has a library hold list of 8 people even before the first book has arrived…and the MSM is discussing “speculation” practically every day?
https://www.wsj.com/podcasts/whats-news/an-economy…
10/19/2025
An Economy Built on Speculation—for Better and for Worse
From the land mania following the Revolutionary War to the AI craze now, speculation is in the American economy’s DNA. These kinds of big bets have shaped our present and continue to fuel tomorrow’s economic growth. Host Katherine Sullivan unpacks the past and future of American speculators. [end quote]
There is a disconnect between the financial markets and the real economy.
The huge monetary stimulus from 2021 - 2022 (from the Federal Reserve) inflated asset prices. The speculative bubble has been inflated by lending by the Shadow Banking System. Financial conditions are very loose and getting even looser.
The fiscal stimulus helicopter drop from Congress in 2021 - 2022 went directly into consumer pockets. Together with supply chain problems the extra cash led to consumer price inflation. Most of this helicopter money has already been spent.
https://www.nytimes.com/2025/10/19/business/econom…
Wealthy Americans Are Spending. People With Less Are Struggling.
Data show a resilient economy. But that largely reflects spending by the rich, while others pull back amid high prices and a weakening labor market.
By Ben Casselman and Colby Smith, The New York Times, Oct. 19, 2025
…
The divide between rich and poor is hardly new, in Chicago or the rest of the country. But it has become more pronounced in recent months. Wealthier Americans, buoyed by a stock market that keeps setting records, have continued to spend freely. Lower-income households — stung by persistent inflation and navigating a labor market that is losing momentum — are pulling back.
The top 10 percent of U.S. households now account for nearly half of all spending, Moody’s Analytics recently estimated, the highest share since the late 1980s. Consumer sentiment has climbed among high earners but steadily fallen for other groups.
“This isn’t just an inequality story — it’s a macroeconomic story,” said Lindsay Owens, executive director of the Groundwork Collaborative, a progressive policy group. “As the wealthy continue to consume, that’s masking more and more insecurity and instability in the economy under the hood.”…
With so much riding on high earners, the economy could suffer if stock prices fall or some other shock leads them to pare their spending. And lower-income households are already stressed financially, leaving them vulnerable if the labor market weakens further… [end quote]
Real GDP growth was 3.8% in 2Q2025. The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2025 was 3.9 percent on October 17. This is strong GDP growth with no sign of recession.
The Cleveland Fed’s Inflation Nowcast shows 2Q2025 and 3Q2025 well above the Fed’s target. The Atlanta Fed’s Underlying Inflation Dashboard is red across the board with every parameter more than 0.5% above its target.
The strong GDP growth and high inflation should influence the Federal Reserve to hold the fed funds rate constant. However, the options market is predicting a fed funds rate of 3.50 - 3.75% in December. Fed Chair Powell and the FOMC are under immense pressure from President Trump to drop the fed funds rate. The job market is weakening so the Fed is in a quandary since they know cutting the fed funds rate will be inflationary but they want to support the labor market. It’s hard for the Fed to control inflation when tariffs will start to bite in the upcoming holiday buying season.
Despite this, the 5-year inflation expectation is 2.3%. If it turns out to be higher the inflation-adjusted bonds (I-Bonds and TIPS) will have a higher yield than comparable Treasuries.
The markets are nervous. The Fear & Greed Index is in Fear. The trade has moved from risk-on to risk-off as stocks and junk bonds dropped relative to the 10 year Treasury.
The stock market had some noise last week. The VIX spiked a little but has since subsided. The upward trend is still intact though bullish percent has dropped.
The Treasury yield curve dropped along its entire duration. This is bullish for the bond market since all existing bond prices rise when yields fall.
Oil, natgas and bitcoin fell but gold is holding at its record level.
The METAR for next week is cloudy. There may be some bumpy days but no trend change unless something dramatic happens.
Wendy
https://stockcharts.com/freecharts/candleglance.ht…
https://stockcharts.com/freecharts/candleglance.ht…
https://stockcharts.com/freecharts/candleglance.ht…
https://www.cnn.com/markets/fear-and-greed
https://stockcharts.com/freecharts/yieldcurve.php
https://fred.stlouisfed.org/series/CPGDPAI
https://www.atlantafed.org/cqer/research/gdpnow
https://www.cmegroup.com/markets/interest-rates/cm…
https://www.clevelandfed.org/indicators-and-data/i…