A reader asks, why is the trend our friend?

Hi there Admin,

Thanks for sharing and being a light in this unprecedented times.

You said “The trend is your friend. Let inflation and time do the heavy lifting for asset prices and cash flows. Let abhorrent social and religious Marxist deficit spending do the heavy lifting.” If you have a leisure time, can you expand a bit more in a layman’s terms. As always thank you.

Dmitry

Look at how M2 has accelerated since late 2008, which coincided with the implementation of QE. It has almost tripled over that timespan and since quantitative easing was implemented, federal government spending levels with its concomitant increases in money supply and treasury securities has accelerated.

All deficit spending is eventually captured by the asset owners 

All of this extra money supply needs to find a home. It ends up parking itself on to the balance sheets of those who can capture this deficit spending. The wealthiest asset owners benefit the most. I look at the increasing level of US Treasury securities outstanding and can’t help but conclude how all of these securities will be used as collateral to buy up other assets.

Treasuries are considered the least risky and most liquid of assets and they seem to be produced at ever greater levels. All of these treasuries and the increase in M2 has had a profound effect on the asset markets. It has had a profound effect on the price of Bitcoin. It has had a profound effect on the price of gold and silver.

Most income generating assets have benefited tremendously not just in price levels, but also when we look at the amount of cash flow these underlying assets now generate. I think it’s become clear for most people that the published governments inflation data seriously under reports the true inflation, over the long term.

Long-term inflation data underreported

When we look at the published inflation data for each individual year, there may be an under reporting of perhaps one or two percentage points over what most people experience. That may not sound like a lot, but over 10 or 20 years, the difference can be huge. This is why when we look at inflation data regarding house rents, college tuition, or health care prices, they outpace the overall rates of published inflation numbers, because it’s much more difficult for the governments to hide the true inflation numbers in these subsectors.

Okay. So what does this mean? It means that investors in the income generating assets will tend to see their cash flows rise with the real inflation numbers and not what the government gives us. Landlords will continue to experience outsized gains in rent increases. Corporations will continue to experience outside increases in their profits.

Of course, those who are of the bottom 80% in balance sheet wealth don’t own enough assets or don’t own any and are unable to keep up with the true rates of monetary and price inflation. What an irony, since social deficit spending is supposed to target those in need.

Recklessness made possible by QE

And it was all made possible because of QE. Without QE, the United States government would have gone bankrupt. There’s just not enough organic demand for their treasury securities. All of this money and all of these treasury securities bid up everything in the asset markets.

I look at the price of gold and to be honest, it’s simply just playing catch up with the true rate of monetary inflation. Yes, there is a premium in the price of gold, because of what we’re seeing around the world, but it is essentially telling us the true rate of monetary inflation over the longer term.

What an open checkbook means

Okay, with the United States government essentially free to spend as much as it wants to spend, it is now going full bore social Marxist. It’s spending on things and ideas that were previously inconceivable because the government’s objectives are so costly that it previously would have bankrupted the federal government.

I look at the trillions of dollars that have been and are currently being spent on open borders, social Marxist ideologies and DEI, for instance. I look at the amount of money that the federal government is now spending on interest expenses alone, which is now at 1.5 trillion dollars annually and increasing. I look at the amount of money that Trump has devoted to military and War. I look at how Federal Reserve continues to suppress the yield curve, especially on the long end. I look at the massive consolidation of wealth since 2009. I look at all of these factors and many more and can only conclude that things can only go in One direction.

Social deficit spending in its manifold forms is ostensibly designed to help the most needy, but it’s this deficit spending that actually helps to ruin their lives over the longer term. The asset owners are the true beneficiaries from social deficit spending. And this is why the asset owners are the ones who promote social deficit spending programs in the first place.

Socialism works, it’s just that its true intention is never publicly discussed. Ironically, the publicly stated social spending beneficiaries are the ones who actually come up with the short straw. These people fall further behind over time as deficit spending just facilitates wealth and income inequalities.

QE and the expansion of asset price multiples

I suspect that without QE and in a relatively free Bond market like in pre-2008, the 30 year treasury would be yielding at least 8%. QE enables the federal government to borrow at much lower rates. And because the longer end of the yield curve is being suppressed, this allows for an expansion in the price multiples of assets.

Moreover, QE allows the federal government to spend as recklessly as it wishes. Thus, whatever the human species can conjure up as an important objective, the federal government can spend to try to make it a reality.

The trend without end

All of this spending and all of this money and treasury security creation is an absolute tsunami that you and I cannot stop. It is unprecedented in modern history and it makes Rome’s coin clipping scheme child’s play.

Unless we see bombs take out Washington DC or Apophis decimate the planet, the true owners of the Federal Reserve will keep the spigots on and allow the federal government to spend as wildly as it wishes.

Trump is the Marxist’s best friend

Now, we may say that Trump is rolling back all of this DEI crap, but I say he’s really not. He’s become such a terrible president in such a short time that he’s essentially become the Democrats best friend. When the far left takes over this country, it will be like a Bolshevik revolution. And the Federal Reserve will facilitate the whole process.

So, you and I cannot predict the future, but I’m sure that we are like-minded, since you do stop by this website. I have frequently in the past mentioned that I sort of think with two minds. On one hand, I make recommendations and predictions in the financial and asset markets based on what I see in front of me. On the other hand, I try to make predictions based on the written word about things we cannot see. The two often diverge. I figure that if what I think will come to pass actually does come to pass, whatever we’re invested in won’t really matter anyway.

Thus, the more filthy and Marxist the people and governments become in the West, the more spendthrift they become. If the Federal Reserve essentially provides the United States government with an open checkbook, it’s going to spend itself into Oblivion and will take down the population with it.

The cost of living crisis

So, why are we seeing this so-called cost of living crisis? It’s because the federal government has been under reporting the true price inflation data for so long that people’s real experiences on the street since the GFC bear no resemblance doing the government is saying.

So, unless there is some sort of washout event, asset prices will continue to climb, because their underlying cash flows will continue to climb higher than official price data would otherwise indicate. The population is now too filthy and degenerate and have now become too reliant on government largesse for it to end.

And the only way this to end will be through a nuclear take out of DC or wormwood. Thus, for the asset owners, the trend is our friend. And for those who don’t own the assets the trend is an absolute nightmare.