Crumbs

• Sam Zell thinks we’re in a bubble caused by the Fed. Well, not the most original of ideas, but Sam has a track record of being right more than he’s wrong,
• Elon Musk has inherited Steve Jobs’ ‘reality distortion field’. Elon is the poster middle-aged man of the current bubble. Will he turn out to be the Kenny Lay of it?
• Carson Block nails it (also at but probably paywalled: I put up a temporary text extract because I think this is so important: I think if you just search for “The ‘stonk’ bubble poses significant global risks” you’ll find it. It’s on Zerohedge here but Twitter seems to find ZH threatening). Block basically endorses Michael Green’s theory that passive investing just creates an unstable feedback loop. With a fixed stock of equities to buy, and passive funds essentially forced to buy, at any price (because they can’t leave investor’s money in cash) a modest level of inflow from active to passive, and from stimulus check to passive, drives up stock prices ‘exponentially.’ Green estimates that when a passive fund receives an additional dollar, the automatic decision to maintain balance by buying in proportion to market capitalisation results in an increase in market cap of more than $17! (I put ‘exponentially’ to mean ‘rapidly’ because it’s clear that nobody uses the word in its original meaning any longer. Originally, the word meant with a rate of change which is proportional to the value of that which is growing.)
• The problem of velocity. Taps Coogan discusses the missing link between increasing the money supply and triggering inflation. He points out that demand leaks out in an open economy (which characterises the UK and Japan more than the USA) . QE per se doesn’t generate money: it just moves it around between the Treasury General Account and the Fed. However, Biden’s stimulus fiscal policy will put money into the hands of consumers who will spend it. An unalloyed good thing!
• The NHS is getting re-organized again. Nothing good will come of this. By centralizing control, you end up with a health system that is driven by ever changing political expediency rather than long-term assessed health benefits. This is the reason that the NHS employs no health economists. Nobody cares about maximizing Quality Adjusted Life Years any more compared to preventing the closure of a creaking old wreck of a hospital in a marginal constituency.
• 

Kolanovic: “We believe that the last supercycle peaked in 2008 (after 12 years of expansion), bottomed in 2020 (after a 12-year contraction) and that we likely entered an upswing phase of a new commodity supercycle. Mostly it will be the story of a post-pandemic recovery (‘roaring 20s’), ultra-loose monetary and fiscal policies, weak USD, stronger inflation, and unintended consequences of environmental policies and their friction with physical constraints related to energy consumption and production”

Wrap

Strong risk on day:

• global equities up, US markets hitting all-time highs in many cases, FTSE up 1.2%,
• FAANG stocks up, high beta effect?
• All non-money commodities up: CL1 up 2.35%, Brent same, only nickel taking a pause,
• govt. bond yields up everywhere, 5bp for US 10 year,
• currencies fairly flat (DX up 0.03% to 90.448).
• BTC down 0.65%, but now standing at $47.7K.

Generally, vaccine rollouts getting better, governments promising to spend more money, central banks promising to let the economy run hot, economic data utterly terrible but no worse than expected (UK economy down 9.9%, worse than the 1920’s including the year of the General Strike).

Worth a listen

David Beckworth interviews Robert Kaplan. Central banks are very important in the modern world, and if you have a chance to hear a CB chairman speak unscriptedly, it’s worth taking it. Kaplan almost comes close to admitting that the Fed is creating severe distortions in the economy but just manages to say this side of the line. My take was that the Fed will not tighten before inflation is practically roaring.