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sdholloway56
Senior Advisor

Money supply

So M2 might be up by $4T, but stock valuations are up $8T, not to mention other asset classes. 

And if you assume about a 10% efficiency of transmission of asset inflation, I think we can survive this. Sorry, Ludwig. Mostly sterilized by giving money to rich people  already.

Bigger problem is if and when those assets deflate.

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16 Replies
erikjohnson61y
Veteran Advisor

Re: Money supply

People are taking their stimmy checks and buying 100 shares of X on Robinhood or whatever platform, raising the asset value of people that own 100 million shares of X.  Everything important happens at the margin. (In other words I agree with you: handing out fake money enriches those who are already wealthy).

Like land prices, stock prices are high because interest rates are so low. Land prices are a function of what payment the buyer can afford - P+I.  Low I, high P.

Stock prices are a function of alternate return. Used to be you could make 10% annually in the stock market (long term average) and bonds would get you 4-6%.  Now bonds are 2%. A doubling of stock market multiples implies a halving of long term income (return from business profit, not speculative buying of the stock). A PE of 16 means it takes 16 years of the companies profits to pay back the share you bought. A PE of 30 means it takes nearly twice as long, implying about half the rate of return.

So the implicit answer to what will end this party is: rising interest rates. We saw that last week. Yellen said they might have to raise interest rates if inflation shows up (as if it hasn't already), and the Dow dropped over 1000 points in a couple days. So then Janet says "Just Kidding!!!!"  and the Dow pops right back up.

BTW, Ludwig is usually proven right in the long term.  Let's see if Uncle Joe starts paying for all this excess with higher taxes or if he keeps on printing...

sdholloway56
Senior Advisor

Re: Money supply

As I’ve said, I am only concerned about inflation as a second order effect- the politics of nobody being willing to let asset values decline materially.

As far as “stocks aren’t overvalued because interest rates are low” goes, all that happens when the Fed seizes bonds and replaces them with 0 rate money is that assets rise to a point where a 0 return over a fairly long timeline is guaranteed. Or worse.

Although the game of America cannibalizing itself with share buybacks so that management can cash their massive “incentives” will be a force.

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sdholloway56
Senior Advisor

Re: Money supply

The only way you’re going to have sustained inflation is if there is strong wage pressure.

Hopefully there will be some- if our Republic is to survive and not fall to fascism. But I think it will take a lot of pushing to even get that.

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timetippingpt
Honored Advisor

Re: Money supply

You guys are smarter than me....that is a given

Yet, I might suggest you are looking at the wrong country. As the only safe haven in the world, (at least in terms of currency), the triggering event almost by definition will not start here. Mostly, Europe or maybe even China, but Europe is such a basket case, and such a powder keg, I mean those folks know how to start real wars, not desert video ones.

If we look there, you will find, bizarre amounts of issues that are never going away. What if anyone stops buying Italian worthless bonds? Or, more importantly, French worthless bonds? The French have massive issues, why even some of their leaders are forecasting civil war, and yet they sold their bonds this week?  hmmmm

Just no floor of value left for anything, anywhere. So, it becomes not a issue of IF this thing melts down, just a  matter of when or what causes it. Ludwig will be right for sure, not sure if any of us live long enough to see it, but I must say, Harris is just the right person to trigger the meltdown. (Remember Soros is running things and Joe isn't well, so I suspect Harris will be the fall gal, just like Jimmy C back in the day)  jmo, no facts involved.

BA Deere
Honored Advisor

Re: Money supply

https://babylonbee.com/news/biden-proposes-2-trillion-bill-to-study-whats-causing-inflation-to-rise   

snip:

WASHINGTON, D.C.—President Biden proposed a $2 trillion spending bill Monday for the purpose of determining the cause of rising inflation. This is Biden’s fourth proposed $2 trillion bill in as many months.

“The cause of inflation is a major concern for all Americans,” Biden told reporters. “Rest assured, your government is committed to spending however much taxpayer money it takes to get to the bottom of this malarkey!”

According to Biden, the cause of the rapid increase in inflation has been baffling his economic experts for weeks. “All we know is that some mysterious event happened around January 20th which caused inflation to skyrocket out of control,” Biden said. “We don’t know what that event was exactly, but we do suspect President Trump was involved somehow. And maybe Russia.”

Biden noted that his willingness to spend trillions to study the problem shows just how seriously he takes the threat of inflation. “I can’t remember the last time anyone proposed a $2 trillion spending bill to Congress,” he stated. “I mean that honestly: I can’t remember. Say, what were we talking about again?”

In the meantime, officials from the US Treasury as well as the CDC have advised the public to start carrying double wallets to protect their money and help slow the spread of inflation.

🙂  

CPI was up 4.2%, watch that.  The inflation index is funny stuff like 140 sheets on a roll of shop towels down from 160 sheets and the price didn`t go up...what inflation?

lsc76cat
Senior Advisor

Re: Money supply

C'mon BA - The Babylon Bee??  They hide behind the "satire" technicality.

When you put things in quotation marks the words better have been said by the person supposedly quoted.

"Facts are stubborn things"  (John Adams)

"Use them properly"  (me)

"Some things that are right will always be right."  (my Grandma)

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timetippingpt
Honored Advisor

Re: Money supply

I thought it was funny. Thanks for the chuckle BA.

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sdholloway56
Senior Advisor

Re: Money supply

Some matters for serious conversation.

But fantasy world has seeped over from Forum. Where, btw, it has become completely untethered from reality. A serious challenge to the future of the Republic.

But anyway, ever hear any apologies from the “hyperinflation/death of the dollar” Very Serious People ca. 2011?

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leonardheryford
Contributor

Re: Money supply

I consider that the only real assets are tangible assets.
Shares can go up and down, and therefore it isn't an indicator of wealth.
I also love investing, but it is something that requires tremendous experience and brilliant analytical skills.
Usually, we are subjective when analyzing an investment opportunity, and therefore I used to consult a financial advisor.
By the way, if you also consider that you would need a financial advisor, then check this site yourmoneygeek.com.
I collaborate with this company myself, so I can tell that they provide high quality and friendly service.

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