Update: We have published To The Moon - July 1, 2021 Newsletter !
To The Moon!
Markets are in the midst of an epic, central bank-fueled bubble. The value of financial assets have been grossly inflated by years of endless money-printing that accelerated with pandemic spending. Years of negative real (and often nominal) interest rates encouraged rampant speculation and sundered the relationship between financial assets and economic fundamentals to drive asset prices, as the least knowledgeable investors among us like to say, “to the moon!” Many of today’s investors are modern day Ralph Kamden’s – they know nothing about nothing but think they know everything about everything (if you doubt me, turn on Halftime Report on CNBC). And just like the loveable blowhard brought to life by Jackie Gleason, their crazy financial dreams will fall back to earth with a thud.
By driving the real cost of money negative, central banks effectively eliminated the time factor from investment calculations while allowing economic actors (at least those with access to capital) to borrow money at very low rates. Based on their reasonable belief that this condition will persist for a prolonged period of time, investors feel comfortable ignoring the factor of time that is normally required for assets to gain value. But something else happened as well...