3 ms·

> This is clearly a result of the monetary base expanding at unprecedented levels due to covid (~40% in 2 years). Or, it's because supply chain disruptions hav

> This is clearly a result of the monetary base expanding at unprecedented levels due to covid (~40% in 2 years). Or, it's because supply chain disruptions have caused shortages, and there's more demand post-reopening chasing a smaller base of supply. Japan more than tripled its money supply since 1990 and CPI remained dead-ass flat for thirty years. It's not sufficient to say that an increase in the money supply necessarily leads to an increase in prices. [1, 2] > So far we've seen crazy asset inflation (weird the market is up 30% from pre-covid levels). Repeat after me: an increase in the price of assets is not necessarily asset inflation. If each quantity of asset buys you more CPI basket (i.e. returns outpace inflation) then it's an ROI. A real dollar return. The NASDAQ [5] and S&P 500 [6] P/E ratios are actually roughly in line with historical averages, give or take. Check again. There was a correction recently. Take Google, for instance. Going into end of 2019, it was trading at $1500/share. Today, $2780. That's 1.85X higher! Crazy right? Well, check their revenues. [3] Just over 1.6X higher (and that's an annual histogram). Google has been trading at the same P/S ratio since 2010, give or take. [4] Big Tech is reporting some of the best quarterly performance in the history of the world - certainly since the Dutch East India Company, anyways. Thanks to the COVID response, we very narrowly escaped another lost decade. [7] A few months of inflation means nothing in the long run. [1] https://fred.stlouisfed.org/series/JPNCPIALLMINMEI https://fred.stlouisfed.org/series/JPNCPIALLMINMEI [2] https://tradingeconomics.com/japan/money-supply-m2 https://tradingeconomics.com/japan/money-supply-m2 [3] https://www.statista.com/statistics/266206/googles-annual-global-revenue/ https://www.statista.com/statistics/266206/googles-annual-gl... [4] https://ycharts.com/companies/GOOG/ps_ratio https://ycharts.com/companies/GOOG/ps_ratio [5] https://www.macrotrends.net/stocks/charts/NDAQ/nasdaq/pe-ratio https://www.macrotrends.net/stocks/charts/NDAQ/nasdaq/pe-rat... [6] https://www.multpl.com/s-p-500-pe-ratio/table/by-year https://www.multpl.com/s-p-500-pe-ratio/table/by-year [7] https://voxeu.org/article/tale-three-depressions https://voxeu.org/article/tale-three-depressions

bko 5y ago
> Or, it's because supply chain disruptions have caused shortages, and there's more demand post-reopening chasing a smaller base of supply. Here's a thought. Supply chain shortages mean people are buying less and obviously some prices are sticky. For instance, I can't buy a new car regardless of price. The price takes a while to adjust wand when "supply chain" clears up, I'll just be able to buy my car at a higher price, further driving inflation. Repeating "supply chain" is not a counter argument. > Japan more than tripled its money supply since 1990 and CPI remained dead-ass flat for thirty years. It's not sufficient to say that an increase in the money supply necessarily leads to an increase in prices. [1, 2] While it is true that not every money supply increase has led to inflation, almost all high inflationary periods coincided with the money supply growing. > The NASDAQ [5] and S&P 500 [6] P/E ratios are actually roughly in line with historical averages, give or take. Check again. There was a correction recently. I think you need to check again. We're at 26 S&P. Last time it was this high was 2008. Time before then was briefly in 1890s (not a typo) > Thanks to the COVID response, we very narrowly escaped another lost decade. [7] A few months of inflation means nothing in the long run. It's not nothing to the pensioners that saw their wealth evaporate 7.5% in one year and likely more to come. Hopefully social security keeps up... https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio
- arcticbull 5y ago
  > Here's a thought. Supply chain shortages mean people are buying less and obviously some prices are sticky. For instance, I can't buy a new car regardless of price. The price takes a while to adjust wand when "supply chain" clears up, I'll just be able to buy my car at a higher price, further driving inflation. I don't expect prices to fall back down meaningfully - especially after a few wage/price cycles. However, I do expect them to stop going up, which is just as good after a few wage/price cycles. There's no reason to think the prices will continue to go up 7% per year. Especially when in your particular example, between January and February, the price of a new car went up 0%, and a used car went up 1.5%, down from last months 3.3%. [1] Gas prices are down 1% and piped gas down 0.5%. There are signs that things are starting to turn around. > While it is true that not every money supply increase has led to inflation, almost all high inflationary periods coincided with the money supply growing. Correlation != causation. > I think you need to check again. We're at 26 S&P. Last time it was this high was 2008. Time before then was briefly in 1890s (not a typo) It's currently 25.86. In 2020, it was 25. In 2018, it was 25. In 2009 it hit 123. In 2003, it was 32. In 2002 it was 46. In 2001 it was 27. In 1999 it was 33. Yeah, it's a little higher than average, but that's likely just due to 0% interest rates and a newfound penchant for margin lending. I don't see that as particularly or inherently unhealthy or at all indicative of "asset inflation." > It's not nothing to the pensioners that saw their wealth evaporate 7.5% in one year and likely more to come. Hopefully social security keeps up... Pensioners like basically everyone else aren't invested in dollar bills under their mattresses. [1] https://www.bls.gov/news.release/cpi.nr0.htm https://www.bls.gov/news.release/cpi.nr0.htm
  - bko 5y ago
    > Correlation != causation. People misuse correlation/causation expression so much I think its actually detrimental... If something coincides with something else nearly 100% of the time, I think its safe to say there's some relation between the two. And printing money is always prior to inflation. > It's currently 25.86. In 2020, it was 25. In 2018, it was 25. In 2009 it hit 123. In 2003, it was 32. In 2002 it was 46. In 2001 it was 27. In 1999 it was 33. Are you talking about monthly? Maybe... The other thing about those times is we didn't have an unprecedented decline in commercial activity. How could businesses shut down indefinitely and a global pandemic looming over the world and the natural market response be "bullish for business!". Come on... > Pensioners like basically everyone else aren't invested in dollar bills under their mattresses. Yes, they're invested in fixed income who yield < 2% and will likely drop a lot in dollar terms once rates ramp up.

bko 5y ago

> Or, it's because supply chain disruptions have caused shortages, and there's more demand post-reopening chasing a smaller base of supply. Here's a thought. Supply chain shortages mean people are buying less and obviously some prices are sticky. For instance, I can't buy a new car regardless of price. The price takes a while to adjust wand when "supply chain" clears up, I'll just be able to buy my car at a higher price, further driving inflation. Repeating "supply chain" is not a counter argument. > Japan more than tripled its money supply since 1990 and CPI remained dead-ass flat for thirty years. It's not sufficient to say that an increase in the money supply necessarily leads to an increase in prices. [1, 2] While it is true that not every money supply increase has led to inflation, almost all high inflationary periods coincided with the money supply growing. > The NASDAQ [5] and S&P 500 [6] P/E ratios are actually roughly in line with historical averages, give or take. Check again. There was a correction recently. I think you need to check again. We're at 26 S&P. Last time it was this high was 2008. Time before then was briefly in 1890s (not a typo) > Thanks to the COVID response, we very narrowly escaped another lost decade. [7] A few months of inflation means nothing in the long run. It's not nothing to the pensioners that saw their wealth evaporate 7.5% in one year and likely more to come. Hopefully social security keeps up... https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio

arcticbull 5y ago
> Here's a thought. Supply chain shortages mean people are buying less and obviously some prices are sticky. For instance, I can't buy a new car regardless of price. The price takes a while to adjust wand when "supply chain" clears up, I'll just be able to buy my car at a higher price, further driving inflation. I don't expect prices to fall back down meaningfully - especially after a few wage/price cycles. However, I do expect them to stop going up, which is just as good after a few wage/price cycles. There's no reason to think the prices will continue to go up 7% per year. Especially when in your particular example, between January and February, the price of a new car went up 0%, and a used car went up 1.5%, down from last months 3.3%. [1] Gas prices are down 1% and piped gas down 0.5%. There are signs that things are starting to turn around. > While it is true that not every money supply increase has led to inflation, almost all high inflationary periods coincided with the money supply growing. Correlation != causation. > I think you need to check again. We're at 26 S&P. Last time it was this high was 2008. Time before then was briefly in 1890s (not a typo) It's currently 25.86. In 2020, it was 25. In 2018, it was 25. In 2009 it hit 123. In 2003, it was 32. In 2002 it was 46. In 2001 it was 27. In 1999 it was 33. Yeah, it's a little higher than average, but that's likely just due to 0% interest rates and a newfound penchant for margin lending. I don't see that as particularly or inherently unhealthy or at all indicative of "asset inflation." > It's not nothing to the pensioners that saw their wealth evaporate 7.5% in one year and likely more to come. Hopefully social security keeps up... Pensioners like basically everyone else aren't invested in dollar bills under their mattresses. [1] https://www.bls.gov/news.release/cpi.nr0.htm https://www.bls.gov/news.release/cpi.nr0.htm
- bko 5y ago
  > Correlation != causation. People misuse correlation/causation expression so much I think its actually detrimental... If something coincides with something else nearly 100% of the time, I think its safe to say there's some relation between the two. And printing money is always prior to inflation. > It's currently 25.86. In 2020, it was 25. In 2018, it was 25. In 2009 it hit 123. In 2003, it was 32. In 2002 it was 46. In 2001 it was 27. In 1999 it was 33. Are you talking about monthly? Maybe... The other thing about those times is we didn't have an unprecedented decline in commercial activity. How could businesses shut down indefinitely and a global pandemic looming over the world and the natural market response be "bullish for business!". Come on... > Pensioners like basically everyone else aren't invested in dollar bills under their mattresses. Yes, they're invested in fixed income who yield < 2% and will likely drop a lot in dollar terms once rates ramp up.