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Market Pulse: April 29, 2024

Lou Brien has been with DRW for almost a quarter century. From his position at the company, as Strategist/Knowledge Manager, Lou keeps an eye on the Fed in particular and the economy in general. He likes to say that he looks behind the headlines to examine the finer points of the data in order to not only know where the economy is, but where it is going.

Early in May, what goes around, comes around; or so it seems.

It was at the April 30/May 1, 2013 FOMC meeting that the Fed started to discuss in earnest the “conditions under which it might be appropriate to change the pace of asset purchases.” Some of the policymakers were ready to get going on the taper as early as June, the next meeting. Others urged caution; no need to spook the market! In any case, the post meeting statement did not give any indication that the Fed was planning to ratchet back on its accommodation. The market would have to wait for the minutes from the meeting, set to be released on the afternoon of May 22, to find out that taper was on the clock.

The funds rate had been up against the zero bound since December 2008, that was as low as the Fed contemplated going. The active policy tool since that time was Quantitative Easing (QE), expanding the Fed’s balance sheet while distributing money into the economy. When the FOMC met in May 2013 they were buying $40 billion mortgage-backed securities and $45 billion longer-term Treasuries every month. This was the third QE program; this iteration began in late 2012. At that onset of QE3 the Fed balance sheet was at $2.8 trillion, it was a half-trillion bigger when they started to talk, behind closed doors, about how they should bring this version of QE to a conclusion.

As it turned out, the market would not have to wait for the May 22 mid-day release of the FOMC minutes, because earlier that morning, to the surprise of everyone, maybe even himself, Fed Chair Bernanke let the cat out of the bag. He was being questioned about the economy and Fed policy by the Congressional Joint Economic Committee when he was asked if the Fed had begun making plans to slow the expansion of their balance sheet. Everyone knew it would have to happen eventually but it did not seem as though any participants had begun to plan for it. But then Bernanke said, "If we see continued improvement and we have confidence that that's going to be sustained then we could in the next few meetings ... take a step down in our pace of purchases,

"WHAT?!?!? WHAT DID THE FED BOSS JUST SAY!?!?!? All of a sudden, the time for planning for the taper had passed and now it was time to panic.

The Taper Tantrum was born in full bloom. Bond yields shot up, extreme volatility hit the dollar and the SP was down 7.5% in a month.

(The FOMC meets this week, on April 30 and May 1; policy is at an interesting/critical juncture.)

Haymarket Square, at the corner of Randolph St. and Des Plaines St. in Chicago, is where the rally in support of the striking workers was to be held on May 4, 1886. The strike was by employees of the McCormick Harvesting Machine Company who wanted an eight-hour work day. Relations between the workers and the company were fraught. Just the day before the Haymarket gathering, at least one person was killed and others injured during a conflict at the company’s west side factory.

The situation was tense in Haymarket Square, with the potential for violence between the workers, the anarchists and the police a near certainty.

But reports say the rally began quite peacefully. Several speakers supporting worker rights addressed the crowd, which was estimated to be between 600 and 3,000 people. A light rain turned heavier and many in people left early. But the later speakers were more radical, and angry. At 10:30pm the police called time on the rally and they advanced en masse to break up the crowd and send them on their way.

As the police marched in formation toward the crowd someone threw a homemade bomb at the thin blue line. Then there was an exchange of gunfire. Confusion reigned; blood flowed freely.

Seven policemen and four workers/anarchists lie dead at the scene, seventy others were injured.

Memories of the Haymarket Affair/Massacre/Riot/Incident are shaped/colored/dependent upon which side of the divide you stand.

International Workers Day, celebrated on May 1, rose from the bloodshed that day in Haymarket Square, in Chicago.

(Labor Union resurgence in the US might make the international Labor Day, on May 1 more of a notable event.)

Protests about the war in Vietnam were a regular occurrence on college campuses in the late sixties and into the early seventies. On May 4, 1970 student protesters were out in force, in many locations. On that day the outrage involved an expansion of the war that was announced five days earlier. President Nixon told the country in a national television address on April 28 that he had ordered US troops to invade Cambodia, a country that bordered South Vietnam.

Kent State University in Ohio was one of the schools where the student body was protesting the latest developments with the Vietnam War. On May 1 about 500 people gathered on the Commons, a grassy expanse in the middle of campus; it was a traditional spot for rallies and protests. The event passed quietly enough and the crowd dispersed about 1:00pm so students could get to class on time. But another rally was planned for May 4. University officials did not want another protest and so they attempted to ban the gathering. On the day of the protest the University arranged for an Ohio National Guard units to disperse the crowd.

However, the crowd did not disperse. The Guard fired tear gas into the crowd; that didn’t work. Then the troops were told to advance; weapons were “locked and loaded” and affixed with bayonets. More tear gas made the protesters retreat. Rocks were thrown at the Guard. The students were chased back.

Then at 12:24pm a sergeant began to fire his .45 pistol at the protesters. At least 29 of the 77 guardsmen later claimed that they too turned and fired at students in the direction of the sergeant’s opening volley.

13 seconds is how long it lasted.

67 shots were fired.

9 people were wounded from the gunfire.

4 other students were killed.

(College campus-based protests are once again prominent events at many universities around the country…remember the worst-case scenario…take a cleansing breath.)