On Beliefs & Bubbles
“In just 10 years, vast majority of politicians & economists have switched from a view that large budget deficits are highly irresponsible to view that anything but large deficits is highly irresponsible. That should make people less confident in the claim, but it's the opposite” - John Arnold
Editor’s note: Due to work / logistical issues, we’ll be off for the next ~3 weeks. If something big happens, then we’ll send out a short update -
In the least couple weeks:
US equities hit an all-time high
Italy offered 10yr bonds at a 0.57% yld
Bitcoin breached $50,000
Just about everyone agrees that massive deficit spending from governments around the world are fueling these bubbles.
And that they have been, for at least the last ~10mths, if not longer.
Right now, something’s different:
The US 10yr is on the rise
And commodity prices are ripping up
So - now - we’ve seen financial asset prices & commodity prices inflate.
The question is: do the central bankers change course & treat this situation w/ traditional counter-inflationary policy?
We expect that - eventually - they will have to.
But that could be years from now.
Aggressive deficit spending policies have fueled these bubbles for much longer than past bubbles [for a digression on past bubbles, read this].
“It's going to be great when ‘deficits don't matter’ becomes universally unquestioned conventional wisdom right at the moment it stops being true” - @HedgeDirty
Absurd deficit-thinking got us here.
And it’s eventually going to take us to a place where we don’t want to be -
In Q3, will the market be oversupplied, or undersupplied?
And Russia’s response will likely hinge on *US Shale activity*.
*That* takes us back to our favorite tweet of the year:
“Meet Billy. Absolute Legend. Be Like Billy” - @MOAR_Drilling
The oil market has their eyes on Russia.
And Russia’s got its eyes on Billy -
Sheikh Ahmed Zaki Yamani - the former Saudi Energy Minister - passed away. He lived & experienced some of the most interesting times in the oil market.
In ‘73, he & OPEC executed the infamous oil embargo. In ‘75, he survived one of the world’s most dramatic kidnappings by Carlos the Jackal.
Sheik Yamani left us with a few witty, prescient quotes (we’ll save those for another day). He was 90.
That’s it for this week - we should be back by ~mid-March - catch y’all then -