The Markets of 2020 - An Inflation Story
I took a minute to look at the federal reserve asset adjusted trends of the S&P 500 and homeowner equity. To my complete lack of surprise, although they are at all time highs in nominal terms, when you adjust for the fed's asset sheet (i.e. money printing), we are still on the lows of the post-covid crash. And those are on the lows of the 2008 financial crash.
Monetary inflation is here to stay, but for now it's being mostly contained in capital markets. Is it any wonder $BTC and crypto in general are starting to rage?
Homeowner Equity
Homeowner equity vs Federal Reserve Assets: https://fred.stlouisfed.org/graph/?g=zm6t
10-year view
17-year view
No recovery since 2008 even though nominal prices are at all time highs:
S&P 500
S&P 500 vs Federal Reserve Assets: https://fred.stlouisfed.org/graph/?g=zm6v
9-year view (longest I can get)
Nominal 9-year view:
M1
M1 includes funds that are readily accessible for spending. M1 consists of: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) traveler's checks of nonbank issuers; (3) demand deposits; and (4) other checkable deposits (OCDs), which consist primarily of negotiable order of withdrawal (NOW) accounts at depository institutions and credit union share draft accounts. Seasonally adjusted M1 is calculated by summing currency, traveler's checks, demand deposits, and OCDs, each seasonally adjusted separately.
10-year view
Transcript
It is December 31st, 2020 and everybody's doing some retrospective kind of stuff and I'm no exception here but I wanted to take a look at some data points that I've looked at before on the legal roundtable and everything as far as how the economy is performing in certain aspects.
What you see here is the chart of the sp 500 over the last 10 years. You can see that we are in the coronavirus recession area and we had the big drop in March 2020 and then a v-shaped bottom rebound and back up to all-time highs. that depends a little bit on which stocks you look at but sp 500 is a broad index, therefore, the high flyers are dragging everything up.
What you might have seen before if you watch the Leo round tables is that if you look at this graph and normalize it for the federal reserve assets it's a very different picture. I already have the line inputted here and this is the St Louis Fred system where it's the federal reserve database. We just divide one by the other, we're taking the sp 500 index divided by assets total assets of the federal reserve itself which means how much they hold on their balance sheet which is how they monetize and create new money.
In a very different picture, we can see pretty much no growth between 2011 coming out of 20 the 2008 crash up until 2017 then the stock market started to pick up in proportion to the assets at the fed. Then, we have the March crash with Covid and it's recovered slightly but not much. When we look at just the sp 500 and we compare that steady rise to the normalized you can see that a lot of that growth has just been monetary inflation and it's monetary inflation that has not come out into goods and services which is what everybody's worried about when they talk about inflation but it has all stayed in the capital markets
Prices stocks go up, prices of real estate go up, prices of bonds go up and we've seen that in the compression of the yields over a long period of time but like I said if you've seen the legal roundtable you've seen this chart before.
What I wanted to do in addition to that was actually to look at real estate. Specifically, this is the household owner’s equity in real estate. This is equity above and beyond mortgages and we can see that coming out of the 2008 crash it was low incidentally this is when I bought my house, it was a great buy and up ever since then it's two and a half times down from eight thousand likes that's eight trillion up to 20.4 trillion. We can do the same kind of comparison, we have household owners equity in real estate versus total assets we divide one by the other, and now we see we actually hit a peak in 2019, the absolute scale doesn't really matter it's just the relative changes peak in q3 2019 and then on dramatic downwards since the covid hit. Again that's because of all the trillions and trillions of dollars that have been printed. One thing I looked at the other day was if we look at m you see this enormous spike going from 4 trillion up to 6.7 trillion.
Let's say 6742 divided by 40-78 and that's a 65 increase in the m1 money stock from the beginning of March 2020 up to now. As far as what m1, it includes funds that are readily accessible for spending. M1 consists of currency outside the U.S Treasury Federal Reserve Banks the vaults of depository institutions traveler’s checks of nonbank issuers demand deposits that are checking accounts. Other checkable deposits are just primarily negotiated order withdrawal accounts at depository institutions and all credit union share draft accounts. This is spendable money and a large part of it has gone into stocks, bonds, and real estate. That's been keeping those prices high while everything else has been kind of deteriorating.
This is how it works and don't be lulled in into complacency with high stock market prices. A lot of it's gone into bitcoin which if you're a Leo finance kind of person then you’re probably benefiting from.
Things are still rough out there in the main street economy it's still millions and millions of people unemployed and we just had the 600 stimulus passed here in the U.S. they're fighting over bumping that up to 2000 at the moment it's looking like that's not going to happen but we will see.
That is kind of a snapshot of one angle on the economy and yeah hope you find it useful.
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