13 Jan 2022

How is that for a headline. I am sick of how this guy is dominating the news headlines. Long before he became an anti-vaxxer my dislike for this guy has grown each and every time he has won the Australian Open, flip that is 9 times my dislike has grown. He is a brilliant tennis player, but as a master tactician he is the true GOAT.

Between the beginning of 2019 and the end of 2021, the S&P 500 returned 100.4%, counting reinvested dividends. The last time U.S. stocks doubled in only three years was from 1997 through 1999, just before they fell by roughly 40%.

MarketWatch

The US Dollar was the talk of the day

Money Complex

The US Inflation Hit a 39 year high of 7%. Why is inflation now becoming such a major factor?

Let me talk you through this chart. You can clearly see how closely correlated the S&P500 (light blue) chart is with the growth in the M2 money supply (aqua) and the issuance of government debt (orange). One can safely say that all this debt creation was being used to fuel the stock market and other assets growth. However it is important to notice the collapsing Yellow line, this represents the velocity of money in the economy. If you have decreasing velocity you need to pump harder to keep things rising at the same rate.

Wait for it there is more. Not too many people calculate and report on Marginal Revenue Product of Debt. What you can see is that the amount of GDP created per dollar of Debt is decreasing. Once again like velocity you need more debt to produce the same amount of growth and what does this all lead to in the end? Yes you guessed it Inflation. We have very unproductive debt being pumped into the economy.

Let me try and explain this in simple terms as I watch the clock ticking down for my deadline with 14 min to spare.

If I am living on an island, lets say Vanuatu, and each month I get access to more and more money to spend because my rich uncle has agreed to sign surety for me with the biggest bank in the world. Pretty soon prices on the island are going to go up. After all there is only so much they can produce on the island. Flatscreen TVs go up because I keep buying whatever stock is in supply to kit out my villa and I pay whatever the supplier charges me. Prices at my favourite bar go up as I like to buy the most expensive single malt whiskey’s and they know I am happy to pay a premium. Lets face it what is a lousy $20k a month on indulgences when I can access $20 million and pay next to nothing in interest. With my debt I go buy a few trawlers and offer to pay top dollar to the local fisherman. There is so much more to say but hopefully you get the picture.

China

I have been saying for some time that China is slowing down. The Zero Covid policy is going to cost them dearly, it is probably fitting given that Covid-19 came from China and they kept quiet for too long for anyone to stop it. Xi Jinping has already handed control of lockdowns to the provincial leaders so that he has sufficient scapegoats to demonstrate consequences to the populace.

Check these charts out.

You might also like

Leave a Reply

Your email address will not be published.