What not to say when the stock market gets 'yippy'
The tone-deaf reassurances of economists and politicians
On October 15, 1929, economist Irving Fisher spoke to a regular meeting of the Purchasing Agents Association at 2 Park Avenue in Manhattan about gyrations in the stock market.
The Dow had climbed by more than 600 percent over the preceding eight years and some forecasters were warning of a coming crash. Traders were getting “yippy, a little bit afraid,” the phrase President Donald Trump used last week to describe anxiety over his tariffs.
Fisher dismissed any fear about the future: Stock prices have reached “what looks like a permanently high plateau” and would likely go “a good deal higher … within a few months.”
It was a forecast he would never live down. Stocks dropped by about 25% two weeks later, and over the course of the Depression, market values plunged by a total of 79%. The Dow didn’t return to its pre-crash level until 1954.
On what became known as “Black Thursday,” October 29, 1929, President Herbert Hoover responded to the market crash by saying, “The fundamental business of the country, that is the production and distribution of commodities, is on a sound and prosperous basis.” But with businesses closing down, people losing jobs and thousands of banks failing, Hoover’s reassurances began to fall flat. His failure to stem the Depression destroyed the Republican brand: the party didn’t win a presidential election until 1952.
The Fisher and Hoover comments highlight the risk politicians and economists take when they pronounce on the health of markets and the economy in times of uncertainty.
“This is a great time to buy!!!” Trump posted on Wednesday, hours before he paused reciprocal tariffs for 90 days and indeed made it a great time to buy. (Democrats asked if Trump was signaling his intentions, giving traders an opportunity to profit from the move he would make later Wednesday.) In any event, the next day, stocks were down sharply—and the yips aren’t likely to disappear anytime soon.
Minimizing the pain
Last weekend, Treasury Secretary Scott Bessent minimized the angst of investors in an appearance on “Meet the Press.” Bessent, who over decades has made the unlikely journey from George Soros’ investment firm to Trump acolyte, said that “the American people can take great comfort” in the market’s ability to handle the high volume of trading.
He also suggested that most U.S. retirement savers don’t pay attention to the “day-to-day fluctuations.” Instead, he argued, they don’t risk everything on stocks, but use a 60-40 mix of stocks and bonds to hedge their bets.
However, as Ron Lieber wrote in the New York Times, “Most Americans in a 401(k) do not have a 60/40 account. By saying so, Mr. Bessent understates the risk in people’s portfolios, the fear they feel and how being frightened can affect their retirement security if they sell while scared.”
And then in the succeeding days, bonds joined stocks in heading downward, raising questions about whether even a 60/40 mix provides enough protection at a time when much of the world is suddenly souring on investing in America.
In other noteworthy media appearances, Trump’s controversial trade adviser Peter Navarro predicted the Dow would hit 50,000 by the end of Trump’s term. It closed Friday just above 40,000.
Howard Lutnick, the Commerce Secretary who formerly led Cantor Fitzgerald on Wall Street, also projected sunny confidence on CNBC this week:
People are going to build in America, and the job creation in America is going to be fantastic. You just have to let Donald Trump drive the car, drive the ship, drive the plane, however you want to call it. Donald Trump is in charge. He understands how to do this, and no one could do it better, and that’s just what the market told you today. I understood they doubted it. I understood they were uncertain, but that’s what you get. Never bet against Donald Trump.
Irving Fisher
Irving Fisher was a brilliant economist who made lasting contributions to his field of study. He studied at Yale as an undergraduate and graduate student, was a member of the secretive Skull and Bones club and became a full professor at the age of 31.
Surviving a three-year-long struggle with tuberculosis made him particularly careful about his diet and health habits. Fisher didn’t drink alcohol, coffee or tea, didn’t smoke and avoided cane sugar, pepper, chocolate and bleached white flour.
On the side, he invented an index card system, a predecessor of the rolodesk, that made him wealthy. He ploughed the money from the sale of the index card company into stocks, borrowing on margin and eventually amassing $10 million.
“Fisher was not a modest man,” wrote Philip J. Davis. “His ego was, in fact, enormous. He had plenty going for him and he knew it, and his desire to convince others and convert them was tremendous. He thought of himself as a knight in shining armor, and contemporaries agreed: ‘a modern Parsifal,’ was Harvard economist Joseph Schumpeter's description.”
Like some other public intellectuals, he took his success in his chosen field as a license to opine widely on many subjects. One of them was eugenics, a then-fashionable and now discredited racist theory. In a speech at Cold Spring Harbor, Long Island, in June 1921, he bemoaned the failure of university graduates to produce enough children.
“He thought of himself as a knight in shining armor.” — Philip J. Davis
As Richard Conniff wrote in the Yale Alumni Magazine, Fisher considered this “race suicide” and believed that immigration should be greatly reduced, with birth control “extended from the white race to the colored” and to “undesirable” ethnic groups.
A eugenics committee should “breed out the unfit and breed in the fit.” Conniff quoted Fisher as warning that the “Nordic race…will vanish or lose its dominance.” These were the kind of sentiments that would lead Nazi leader Adolf Hitler to praise the U.S. government’s tight restrictions on immigration. (In the years leading up to World War II, Fisher seemed to retreat from some of his views, and he spoke out against anti-semitism.)
Untrustworthy trusts
As stocks soared in the 1920s, Fisher was one of many academics to cash in by serving as a paid adviser to investment trusts, which were a popular way of putting money to work in the markets. (“It was a golden age for professors,” wrote John Kenneth Galbraith in The Great Crash 1929.)
When Fisher spoke to the purchasing managers on October 15, he reassured them that the trusts were safe, and that, as the New York Times summarized his remarks, the trusts had been unfairly “charged with responsibility for many present evils.”
In retrospect, investment trusts were blamed for helping drive a frenzy of stock speculation that imploded in late October, 1929. These opaque vehicles often bought stock on margin — using borrowed money to juice returns. In a rising market, that leverage multiplied the payoff to investors. When the market crashed, the funds couldn’t pay back the loans. Among the millions of victims was Fisher himself: he lost his house and his fortune in stocks.
Goldman Sachs was just one of the many companies that created investment trusts. It sold $90 million worth of shares to the public at $104. After the crash, the shares were valued as low as $1.75, Galbraith noted.
A company’s earnings help determine its value on the stock market, but sentiment about the economy plays a role in shaping what people will pay for stocks in general. Robert Shiller, who like Irving Fisher is a professor of economics at Yale, developed a widely accepted way of evaluating stock prices. According to his CAPE (cyclically-adjusted price-to-earnings) ratio, stocks are selling at a very high level — 33 times the inflation-adjusted average earnings over the past 10 years. That is slightly higher than stock values before the 1929 crash, though not as high as stocks were before the Dotcom Bubble burst in 2000.
Thus the Trump tariff shock came at a time when stock prices are extremely high by historical standards (though a bit lower than in January when investors expected market-friendly policies from the new Trump administration). Are lofty stock market values justified by potential efficiency gains from the AI revolution? That remains to be seen.
But the past few weeks have sent a clear message to investors: markets will be volatile while the tariff drama — and China trade war — plays out. If investors don’t buy the story Trump’s administration is telling about the high-tariff strategy, there is plenty of room for stocks to fall.
Interestingly, some economists argue that Irving Fisher was right when he said before the 1929 crash that stocks were undervalued. But in a way, it doesn’t really matter.
If the crashing market was “wrong” then about the real value of stocks, investors were wiped out anyway. The old saying, “The market can remain irrational longer than you can remain solvent” is often attributed to economist John Maynard Keynes, even though there’s no proof he actually said it.
But, whoever did say it, it’s still true.
Our new banana republic
I didn’t expect to spend 2025 obsessing over tariffs. I expect you didn’t either. The good news is that there’s an audience for what we’ve learned: tariffs are suddenly a hot topic on social media.