By Randall W. Forsyth

There's a lot of talk lately about financial market bubbles leading inevitably to crashes, which is probably the strongest thing preventing one from happening.

The specter of the crash of 1929 has reappeared in the form of a new book on that subject by New York Times journalist Andrew Ross Sorkin, which was also the subject of a profile this past week on CBS' 60 Minutes . In the broadcast and i n a piece in the New York Times Magazine this past week, Sorkin draws parallels from nearly a century ago. In particular, he says that the current push to bring private equity and credit to individual investors echoes the aggressive marketing of new and novel financial instruments to the public in the Roaring '20s, which were then wiped out in the crash.

Having experienced two crashes already in this century -- the bursting of the dot-com bubble at its start, followed a few years later by the financial crisis after the bursting of the housing bubble -- investors are rightly skittish about the stock market's bull run. No reader of this space is unaware that the S&P 500's 85% rise since it started three years ago has been concentrated in a few stocks, led by Nvidia's stunning 1,600% surge, which roughly coincides with the initial release of OpenAI's ChatGPT.

All of which conjures parallels to the dot-com daffiness around the turn of the century. The difference? The current market leaders show booming profits, rather than the massive cash burn that Barron's Jack Willoughby famously pinpointed in 2000 just as the Nasdaq was hitting its peak.

In contrast to Sorkin's cautious retelling of the 1929 crash, among the best sellers at the peak of the dot-com boom was Dow 36,000 by James Glassman and Kevin Hassett (the latter of whom is reportedly on President Donald Trump's shortlist as the next Federal Reserve chair). The Dow Jones Industrial Average finally hit that level in 2021, a call the late, great baseball announcer Bob Uecker might describe as "just a bit outside."

And ahead of the subprime debacle, Ben Bernanke famously observed in 2005 that housing prices had never declined nationally. Later, as Fed chair in May 2007, he expected the problems of subprime would not have "significant spillovers" on the financial system or the rest of the economy. Lehman Brothers would fail 16 months later, leading to the worst contraction since the 1930s.

Those overly sanguine predictions contrast with the increasing number of bricks being added daily to the wall of worry that the bull market currently climbs. Not to say there's no cause for concern.

Two weeks ago here I wrote of the cracks beginning to appear in the credit markets. Those became more visible this past week with the disclosure of credit problems at Zions Bancorp and Western Alliance Bancorp, which underlined JPMorgan Chase CEO Jamie Dimon's observation this past week that "when you see one cockroach, there's probably more" in the wake of the Tricolor and First Brands bankruptcies.

What's different this time -- and I write this acknowledging the freight that phrase carries -- is that previous crashes were preceded by tight Fed policies. But the central bank began lowering its short-term interest rate target more than a year ago, for a total of 1.25 percentage points.

By contrast, in 1928 and 1929, the Fed was raising rates, largely to rein in rampant speculation. Ahead of the dot-com bust, the central bank hiked its federal-funds rate target nearly two percentage points. And before the financial crisis, the Fed raised the funds rate target 4.25 percentage points, albeit at a "measured" pace.

The debate now is how much and how fast to cut further. After all, financial conditions are still exceptionally loose, according to the latest Chicago Fed data, with stocks hovering near record highs and credit spreads (the extra increment of yield on corporate bonds, high-grade and high-yield, over government debt) at historic lows. Nevertheless, Stephen Miran, who recently was nominated to the central bank by Trump, thinks the funds rate target should be in the mid-2% area, nearly two percentage points below the current 4% to 4.25% target range.

Ignore for the moment 60 Minutes' record of crying wolf about financial crises. Meredith Whitney famously predicted municipal bond defaults totaling "hundreds of billions of dollars" on the show in 2010, which never happened. Barron's said to "buy, buy, buy!" munis when those unfounded fears of worse defaults than in the 1930s lifted yields sharply.

Not that risks are nonexistent. The so-called debasement trade has sent gold to record highs over concerns about the value of paper assets such as stocks and bonds while the U.S. runs a budget deficit over 5% of gross domestic product in the absence of war and recession. Fiscal strains may pressure monetary policy to accommodate deficits, either through keeping short-term rates low or possible yield-curve control on longer-term rates in the future.

Easy money ironically may boost stocks, helping well-off investors, while lifting the cost of living for everybody else. That is a greater risk than a bear market on Wall Street.

Write to Randall W. Forsyth at randall.forsyth@barrons.com

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October 17, 2025 12:27 ET (16:27 GMT)

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