When all is said and done with monetary printing, consensus estimates for the size of the Fed’s balance sheet are upwards of $12 trillion.
I’m not a mathematician, nor a monetary policy expert, but pretty sure that “unlimited” > $12tn, or whatever other arbitrary figure being thrown out there, as if: 1) things are forecastable, 2) the Fed & Treasury now acting as a singular, coordinated entity, will somehow exercise fiscal and monetary restraint to turn the liquidity faucets off after $12 trillion - lest US creditors lose faith in the full faith and credit of the printing press.
Instead of measuring asset price performance in USD terms, which are two moving variables with ever expanding dollar supply, measuring USD denominated assets priced in GOLD terms (“real” terms) provides a different / more accurate picture of SPX performance against a relative constant.
Since 2000, SPX in USD terms rallies and crashes within a longer term multi decade uptrend. But when SPX is measured in Gold terms, very different world and timeline of events:
• Post dot com & 9/11, Greenspan slashes rates to 1% (45 year lows), which stops the SPX/USD fall and starts the rally, while SPX/Gold stays flat during the US housing bubble- SPX/gold flatlined vs SPX/USD rally implies that SPX “growth” in 2000’s wasn’t due to any value creation, but rather, SPX was inflated against easy monetary policy and USD demonetization.
• SPX/gold stops holding flat and starts falling in ‘05, 2yrs ahead of the ‘07 SPX high, and continues falling through Bear Stearns and Lehman, through the March ‘09 SPX bottom to start the longest bull run in history.
• SPX/gold FINALLY finds its post ‘00 DOT COM BUBBLE BURST BOTTOM (which just continued into Lehman / ‘08 bottom) in AUGUST 2011, when the so called risk free US debt faced its first ever credit downgrade from the 2011 debt ceiling crisis. Once deficit reduction goal was established and debt ceiling raised, SPX/Gold finally finds bottom, 3 years after the SPX/USD pre rally bottom.
• SPX/Gold FINALLY gets back to flat from its ‘07 levels in Oct ‘18, 5 years behind SPX/USD’s recovery back to flat. And the moment SPX/Gold was back at breakeven levels in Oct ‘18, SPX and global risk assets experienced its most severe post crisis sell off as FOMC was on a seemingly autopilot rate hike + balance sheet reduction path, until Fed Chair Powell reverses hawkish course 180 degrees to dovish starting ‘19. Risk assets rally throughout ‘19, particularly in Q4 ‘19 as Fed started re-expanding its balance sheet to pump the repo market with liquidity, sending SPX/USD on an unconditional rally.
• But SPX in gold terms never recovered back since the Oct ‘18 back-to-flat → sell off, and continues downward till this day.
Conclusion:
SPX “growth” appreciation measured against a constant supply currency (gold) reveals the index has not actually grown, and furthermore, SPX price appreciation has been wholly dependent on easy monetary policy and USD printing. When policy is easy, USD assets rise. Only when fiscal and monetary restraint is exercised, or perceived to be exercised, does SPX perform in real terms (Aug 2011 debt ceiling crisis = SPX/Gold bottom, Fed balance sheet tightening = SPX/Gold rises).
I’m not a mathematician, nor a monetary policy expert, but pretty sure that “unlimited” > $12tn, or whatever other arbitrary figure being thrown out there, as if: 1) things are forecastable, 2) the Fed & Treasury now acting as a singular, coordinated entity, will somehow exercise fiscal and monetary restraint to turn the liquidity faucets off after $12 trillion - lest US creditors lose faith in the full faith and credit of the printing press.
Instead of measuring asset price performance in USD terms, which are two moving variables with ever expanding dollar supply, measuring USD denominated assets priced in GOLD terms (“real” terms) provides a different / more accurate picture of SPX performance against a relative constant.
Since 2000, SPX in USD terms rallies and crashes within a longer term multi decade uptrend. But when SPX is measured in Gold terms, very different world and timeline of events:
• Post dot com & 9/11, Greenspan slashes rates to 1% (45 year lows), which stops the SPX/USD fall and starts the rally, while SPX/Gold stays flat during the US housing bubble- SPX/gold flatlined vs SPX/USD rally implies that SPX “growth” in 2000’s wasn’t due to any value creation, but rather, SPX was inflated against easy monetary policy and USD demonetization.
• SPX/gold stops holding flat and starts falling in ‘05, 2yrs ahead of the ‘07 SPX high, and continues falling through Bear Stearns and Lehman, through the March ‘09 SPX bottom to start the longest bull run in history.
• SPX/gold FINALLY finds its post ‘00 DOT COM BUBBLE BURST BOTTOM (which just continued into Lehman / ‘08 bottom) in AUGUST 2011, when the so called risk free US debt faced its first ever credit downgrade from the 2011 debt ceiling crisis. Once deficit reduction goal was established and debt ceiling raised, SPX/Gold finally finds bottom, 3 years after the SPX/USD pre rally bottom.
• SPX/Gold FINALLY gets back to flat from its ‘07 levels in Oct ‘18, 5 years behind SPX/USD’s recovery back to flat. And the moment SPX/Gold was back at breakeven levels in Oct ‘18, SPX and global risk assets experienced its most severe post crisis sell off as FOMC was on a seemingly autopilot rate hike + balance sheet reduction path, until Fed Chair Powell reverses hawkish course 180 degrees to dovish starting ‘19. Risk assets rally throughout ‘19, particularly in Q4 ‘19 as Fed started re-expanding its balance sheet to pump the repo market with liquidity, sending SPX/USD on an unconditional rally.
• But SPX in gold terms never recovered back since the Oct ‘18 back-to-flat → sell off, and continues downward till this day.
Conclusion:
SPX “growth” appreciation measured against a constant supply currency (gold) reveals the index has not actually grown, and furthermore, SPX price appreciation has been wholly dependent on easy monetary policy and USD printing. When policy is easy, USD assets rise. Only when fiscal and monetary restraint is exercised, or perceived to be exercised, does SPX perform in real terms (Aug 2011 debt ceiling crisis = SPX/Gold bottom, Fed balance sheet tightening = SPX/Gold rises).