A Companion to the Continuum

The data sets at Yardeni.com are fabulous. You should keep it on watch and rummage through when you have spare time if you want to nerd out.

The current backdrop calls for an open mind, about today, about yesterday, about the decades that have brought us here and by extension, about tomorrow. It is not as simple as “I am a bear” or “I am a bull”. That is outmoded thinking. There are too many unnatural inputs in the mix and that’s why logical thinkers, sometimes very smart ones, are so often thrown off sides (cue the Twitter bears with simply massive followings who’ve basically scared their followers away from even touching this rally from the very beginning to this moment).

This is who we have been for decades. A society that saw its (funny) munny decoupled from gold decades ago in the early 70s, experienced intense inflation into the new decade of the 80s and then has systematically used a supposedly deflationary subsequent back drop (now nearly 4 decades old) and the declining to flat GDP to issue credit upon CREDIT upon CREDIT (i.e. the financialization of the permissive bond market) in an ongoing inflation of epic proportions (that isn’t… it’s Wonderland, work with me here). Credit creation IS our economic engine and the bond market (and the GDP it tracks) has magically allowed it continue for all these decades.

Say what you want about Trump, but if his fiscal reflation were to gain traction the blue line below would probably begin to turn up, but so too would…

us gdp and fed funds rate

…the Continuum.

It’s a disgusting and sordid history if you are a citizen of the US (or other society with a similar Keynesian racket going) and are at all financially/economically aware. In late 2018 Jerome Powell was forced to HAWK against the rise in GDP shown above and the commensurate rise in long-term yields. As we noted at the time, the financialized economy would not tolerate that because it is, well, financialized (embedded with trillions in munny units of debt).

tyx

Against all of this, what are stock prices or asset prices in general? What should they do? Is there even a “should” in this picture or are we on a great adventure?

There is nothing wrong with your television set. Do not attempt to adjust the picture. We are controlling transmission. If we wish to make it louder, we will bring up the volume. If we wish to make it softer, we will tune it to a whisper. We will control the horizontal. We will control the vertical. We can roll the image, make it flutter. We can change the focus to a soft blur, or sharpen it to crystal clarity. For the next hour, sit quietly and we will control all that you see and hear. We repeat: There is nothing wrong with your television set. You are about to participate have been participating in a great adventure [for decades]. You are about to experience the awe and mystery which reaches from the inner mind to… The Outer Limits.

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