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Markets are obviously insane right now but that doesn't mean that the people in the market are irrational. This bubble is going to pop with a devaluation of th

by anm89 6y ago

Markets are obviously insane right now but that doesn't mean that the people in the market are irrational. This bubble is going to pop with a devaluation of the dollar or a devaluation of everything else. But just because we are in a speculative mania does not mean that the price of assets is going to go down moving forward denominated in dollars. It is very possible the people shoving their money into baseball cards look like geniuses 5 years from now if the alternative was holding cash or having zero diversification.

arcticbull 6y ago
> This bubble is going to pop with a devaluation of the dollar or a devaluation of everything else. I'm not sure where you get the idea that the dollar is suddenly going to lose a ton of value. People have been calling for this since the beginning of time, just like the people who keep trying to short the S&P 500. It's not gonna happen, certainly not any time soon. If it did, however, assets would moon as literally anything other than cash is inflation-proof. Moon in units, but remain likely quite constant in value.
- Workaccount2 6y ago
  You might find this interesting https://inflationchart.com/spx-in-m1 https://inflationchart.com/spx-in-m1 It basically shows the value of the S&P 500 as a function of total cash in the system.
- anm89 6y ago
  If you look at a graph of either our money supply or spending it is pretty clear that we are in uncharted territory in terms of money supply expansion. They are basically hockey sticking. So don't make it out to be some kind of fringe hypothesis to expect inflation. It's the base case at this point. For the record I'm specifically not arguing we will have hyperinflation. I don't think we will. We don't even need to get within 1/10th of hyperinflation to inflate away our current stock market bubble or even the crypto bubble.
  - arcticbull 6y ago
    > So don't make it out to be some kind of fringe hypothesis to expect inflation. It's the base case at this point. I don't think it's a fringe hypothesis, I just don't think it's a foregone conclusion by any stretch. I don't think the folks espousing the idea have any basis either. > They are basically hockey sticking. You're only looking at half the equation - inflation is a function of supply and velocity. The fed has tools to adjust the supply to match velocity and it has successfully done so for 50 years. The high asset prices (and crypto prices) are IMO more a function of supply. That doesn't mean inflation. Inflation is measured against the CPI basket -- not against he S&P. Simply having more supply doesn't imply inflation, or even 1/10th of hyperinflation. It just indicates the supply is high. When combined with measured inflation, it also implies the velocity is low. Were velocity to increase, the Fed can contract the supply by increasing the reserve limit, selling back bonds to unwind its balance sheet and raising interest rates. Speaking of high asset prices, you might find this twitter thread suggesting that the Dutch tulip bubble was actually caused by an oversupply of currency [1]. [1] https://twitter.com/emollick/status/1382159296172015616?s=20 https://twitter.com/emollick/status/1382159296172015616?s=20
    - anm89 6y ago
      I'm aware of velocity. The government didn't hand out trillions in transfer payments during the last 10 years of money growth so I think the velocity side is covered as well. The popular wisdom regarding the tulip affair is widely acknowledged to be BS and it is played out regardless, So I'd recommend to pick a more interesting anecdote if you want to make a point regarding economics. On the other hand I have absolutely no doubt that asset bubbles can be inflated by printing money and you are misunderstanding my point if you think I'm insinuating otherwise.

by anm89 6y ago

arcticbull 6y ago

> This bubble is going to pop with a devaluation of the dollar or a devaluation of everything else. I'm not sure where you get the idea that the dollar is suddenly going to lose a ton of value. People have been calling for this since the beginning of time, just like the people who keep trying to short the S&P 500. It's not gonna happen, certainly not any time soon. If it did, however, assets would moon as literally anything other than cash is inflation-proof. Moon in units, but remain likely quite constant in value.

Workaccount2 6y ago
You might find this interesting https://inflationchart.com/spx-in-m1 https://inflationchart.com/spx-in-m1 It basically shows the value of the S&P 500 as a function of total cash in the system.
anm89 6y ago
If you look at a graph of either our money supply or spending it is pretty clear that we are in uncharted territory in terms of money supply expansion. They are basically hockey sticking. So don't make it out to be some kind of fringe hypothesis to expect inflation. It's the base case at this point. For the record I'm specifically not arguing we will have hyperinflation. I don't think we will. We don't even need to get within 1/10th of hyperinflation to inflate away our current stock market bubble or even the crypto bubble.
- arcticbull 6y ago
  > So don't make it out to be some kind of fringe hypothesis to expect inflation. It's the base case at this point. I don't think it's a fringe hypothesis, I just don't think it's a foregone conclusion by any stretch. I don't think the folks espousing the idea have any basis either. > They are basically hockey sticking. You're only looking at half the equation - inflation is a function of supply and velocity. The fed has tools to adjust the supply to match velocity and it has successfully done so for 50 years. The high asset prices (and crypto prices) are IMO more a function of supply. That doesn't mean inflation. Inflation is measured against the CPI basket -- not against he S&P. Simply having more supply doesn't imply inflation, or even 1/10th of hyperinflation. It just indicates the supply is high. When combined with measured inflation, it also implies the velocity is low. Were velocity to increase, the Fed can contract the supply by increasing the reserve limit, selling back bonds to unwind its balance sheet and raising interest rates. Speaking of high asset prices, you might find this twitter thread suggesting that the Dutch tulip bubble was actually caused by an oversupply of currency [1]. [1] https://twitter.com/emollick/status/1382159296172015616?s=20 https://twitter.com/emollick/status/1382159296172015616?s=20
  - anm89 6y ago
    I'm aware of velocity. The government didn't hand out trillions in transfer payments during the last 10 years of money growth so I think the velocity side is covered as well. The popular wisdom regarding the tulip affair is widely acknowledged to be BS and it is played out regardless, So I'd recommend to pick a more interesting anecdote if you want to make a point regarding economics. On the other hand I have absolutely no doubt that asset bubbles can be inflated by printing money and you are misunderstanding my point if you think I'm insinuating otherwise.