Up And Down With The Numbers

Curious, No?

The markets go up and then they go down. Over a long period of time, they tend to go up a certain percentage - and so if you're wise to it, you should just go put your money in indexed ETFs. Warren Buffett even claimed that his wife's ETFs did better than Berkshire Hathaway during the 2010s after the GFC. It may well be true, I don't quite have the means to verify the Berkshire Hathaway end of it. 

Still a quick look at the last 5 years of the S&P 500 tells an interesting story:

So at the end of 2018, it hit a little divot of sorts and was at 2416.62. from there, it climbed to 3380.16 on 14 Feb 2020 when the pandemic hit. It tumbled through march but recovered quickly, responding to the incredibly loose monetary conditions and has been climbing steadily ever since. The most recent peak was on New yers eve at 4766.16. Roughly double from the divot I mentioned. All in a span of 36 months. If you bought ETFs for S&P500 in December 2018, you'd be larfin' hard right now. How extraordinary is this? It took from Feb 1998 to Sep 2014 for the index to go from 1000 to 2000. Doubling your money in 36months is like, I dunno, Sydney real estate?

It makes you realise that what we're looking at is quite extraordinary, and probably tied closely to the extremely low interest rates and Quantitative Easing program run out of the US Fed - the Bernanke Put, so to speak - which was carried on by Janet Yellen and Jerome Powell most dutifully. All that money that was supposed to prop up the economy essentially propped up and rocket-launched the equities market instead. It went on for most of last decade.  

So people have been wondering about the inflation rate over in the USA because since about April 2021, we've seen it go up to 4.2%and then stay above 5%, and now creeping up to 6.8%. The original explanation was that it was the supply chain problems caused by the pandemic. However, more recently the explanation has turned into this being a serious bit of inflation thanks to the Fed printing money. For that to be true, I want to know where all this inflation was between Jan 2007 and March 2021 because if there was one thing the US Fed could not get up, it was the inflation rate. 14 years of the Bernanke Put and no inflation. Then the Pandemic came along and screwed trade and flow of goods, so now you've got inflation. 

Do we honestly think this bit of inflation is because the Fed is printing too much money and wage claims are rising? Come on - I haven't seen wages rising in the 5-10% range at all. At worst, some states raised the US minimum wage in 2021. The way the commentary is going, you would think that the lowly paid got double their money, but really, it's equity holders who got to double their money. The minimum pay raise looks like this. Sad. Clearly nobody doubled their money and a lot of places didn't budge from their paltry $7.25 an hour. You can rule out wage claims as the reason for the CPI rising in the USA. 

And yet the narrative is out there. The Fed's printed too much money so that's why there's this inflation. They ant the US Fed to cut back the QE thing and raise interest rates. It reads like equity traders and investors wanting to have a crash so they can buy back in. They're coming up with any old story to put pressure on the US Federal Reserve Bank to raise rates. They may come to rue what they wished for, because all those beautiful gains in the S&P500 just might come tumbling down when the rates start going up. Just remember, blaming the QE for the inflation that causes the rate spike is a lie.