I read Michael’s stuff all the time. Encourage others to go to the RIA website to read his strong articles.

The most important part of what was said, for investors, is that the macro picture means so much less in a market dominated by trillions of new dollars being thrown at the market. You need a process to follow what's working, regardless of how dumb it is.

This guy is so confused but explained the solution to his own problem and he doesn't even realise it. He talks about QE creating reserves (true); and that the reserves can't get into the economy (true enough) but then he talks about monetary aggregates and velocity ... seriuosly? Of course supply and velocity are opposites if what he said is true ... if money supply includes reserves and reserves can't be spent (and assume output ie PxQ is constant) of course they are offsetting. I will just bang my head on my desk ... or stop watching.

Is monetary velocity even a useful and trustworthy barometer any more? I am skeptical. If the official velocity measures do not track activity in the shadow banking system — all of the sources of lending and capital deployment that exist OUTSIDE the traditional system — then velocity measures will become increasingly worthless as the shadow banking system becomes more outsized and important. Consider: M1 monetary velocity has been in a state of decline for more than 13 years (since 2008). M2 monetary velocity has been in a state of decline for more than 20 years (since 1997). You can see both via FRED: https://fred.stlouisfed.org/series/M1V https://fred.stlouisfed.org/series/M2V Does velocity really and truly matter if it's been declining since the mid-1990s (for M2) and more than a decade for M1? Consider the alternative thesis: — Capital flows from Silicon Valley, private equity, SPACs, hedge fund lending, business development corps, and so on, have risen substantially in importance. Official velocity measures, as far as I understand it, do not capture those sources. That would explain why M2 velocity has been falling from 1997 onward. — At the same time, QE has distorted the velocity measure in yet another way, by dramatically increasing the quantity of inert reserves. This is like reducing the volatility in a portfolio by adding cash but not increasing position size. The volatility of the portfolio will get lower and lower the more cash you add, because the ratio of deployed capital to cash gets smaller. It's true that velocity has fallen off a cliff in 2020, but is that because spending slowed down all that dramatically? Or is it more so because the Federal Reserve killed a fly with a sledgehammer, or perhaps a neutron bomb, in terms of dramatically increasing inert reserves? The other elephant in the room that seems to not be addressed at all in these conversations is: What happens when fiscal emphasis really starts to work? We HAVEN'T SEEN the full impacts of fiscal yet — especially when coupled with the power of a full vaccine rollout. After 2008, the crisis response was almost entirely monetary. The majority of the Obama years were actually a period of fiscal TIGHTENING, due to a switch of legislative control in 2010. So the 2010s were a period of monetary looseness trying to counteract fiscal tightness, which is kind of the ideal recipe for equities and asset prices. The monetary looseness juices the market, while fiscal tightness keeps the recovery relatively weak, and corporate profits in recovery plus buybacks meant an investor bonanza. But when the fiscal taps truly get opened, the game potentially changes in a big way — and in ways so big that the Federal Reserve becomes a backseat player. The other problem here is that a very clear and obvious transition point is coming — the full impact of the vaccine rollout. — We are currently early in the vaccine rollout, which of course means consumer spending and credit etc is going to be more depressed than normal. — But post-vaccine rollout, it is reasonable to expect a meaningful phase shift — in consumer spending and activity, and quite possibly in the ignition of inert reserves too, as banks feel more willing to fund business expansion in a high opportunity landscape via small business retreat. And in fact, too, we don't know what will happen to monetary velocity (the traditional kind) AFTER the post-vaccine rollout. It would seem quite reasonable to assume that, in an environment awash in a sea of liquidity (bank reserves) and also awash in opportunity (arid small business landscape), banks will get excited about lending again post-vaccine rollout. This is not hard to see. It is a very reasonable assumption. You can't put it in a spreadsheet necessarily, but it shouldn't be ignored as a factor. The guess said, re inflation, "The market thinks the Fed is starting to generate inflation." No, no, no. Come on. The market thinks that 1) bank reserves will come more into play after the vaccine rollout and 2) the FISCAL side has a real potential to do some heavy lifting on the inflation side. The Fed is NOT a player in either of those factors, other than holding steady. All they have to do is NOT TAPER early. And it just seems wacky to me not to talk more about that — about the FISCAL side. Even all the stuff with the wackiness of the market, the retail traders on Wall Street Bets, SPACs going to the moon and all of that stuff, the massive sector rotation… Pointing out the market craziness is 100% legitimate. We have some real mania activity going on right now in various corners of the market. But why would you pin it on the Fed, and NOT on the fiscal? I mean come on, the asset craziness is FISCAL again. Look at this May CNBC piece showing how the $1,200 stimulus check went heavily into stocks. The U.S. government basically funded the yeeting of hundreds of billions of dollars into speculation: "Research from Envestnet Yodlee, a software and data aggregation company, found that trading was among the more common uses for the $1,200 stimulus cash. That was especially true for people who earn between $35,000 and $75,000 per year, who increased stock trading by 90% in the week after receiving their stimulus checks. Those with annual incomes between $100,000 to $150,000 increased trading by 82%, while people earning more than $150,000 increased that activity by 50%." https://www.cnbc.com/2020/08/24/many-people-invested-their-stimulus-cash-what-to-know-before-you-do.html Fiscal REALLY IS helicopter money (especially when you give checks to people who don't need them). And fiscal also REALLY CAN be inflation-generative in the real economy too. Think what happens when Americans with no money (the ones who need the checks) get the checks. What do they do? They SPEND. The velocity on money given directly to lower-income Americans is HIGH. Fiscal, not Fed. Fiscal, not Fed. It's such a frustrating theme, that has been going on for a while now, I almost want to shout it: FOCUS ON THE FISCAL. WHY DO YOU GUYS TALK SO MUCH ABOUT THE FED AND HARDLY ABOUT THE FISCAL? Honestly, I feel like all this over-emphasis on the Fed is a form of fighting the last war. We are all used to focusing on the Fed because, post-2008 and all through the Obama years, the Fed was the axe, the Fed was doing all the heavy lifting, while the government was limited in its market impacts. But it just ain't that way anymore guys. The FISCAL is what matters now. The Fed only matters to the extent they are willing to not taper, which more or less means they are holding the accelerator to the floor. They aren't the axe. They aren't the variable changing the game. They are monotone impulse and FISCAL is the thing now. Again, I know it's different from the past. Fiscal was a non-entity as a force from 2009-2016. But the fiscal shift — to a whole new driver — actually started in 2017, with Trump's gigantic tax cut. That was the first huge hit of fiscal stimulus (non-monetary) that juiced markets for the first time in decades. And then we got the CARES act response, $2.2 trillion. And then the additional $900 billion or whatever, and now another $1.9 trillion being negotiated, and talk of a $2 trillion infrastructure package after that, and a strong likelihood Yellen will figure out how to work with Powell on funneling money to the states through a gray area backdoor (e.g. loans on such permissive long-dated terms they look like cash). Upshot: THE FED IS NOT THE DRIVER ANY MORE. UPDATE THE MODELS AND FOCUS ON THE ELEPHANT IN THE ROOM, WHICH IS FISCAL. I don't mean to shout. It's just — this habit of ignoring the fiscal is driving me nuts a little. And also consider doing more with shadow banking — please! — because it seems pretty apparent (as noted above) that traditional velocity measures are in danger of becoming irrelevant too.

I wish all guest audio quality was this good.

An excellent presentation. It's amusing to see the FED struggle to meet it's inflation goal. In the high inflation days of the 1980's and 90's, the FED along with government officials purposely rigged standard CPI calculations using hedonic adjustments, etc. to reduce inflation. The goal was to reduce the Federal deficit and cost of living outlays. Everyone knows that CPI inflation (not asset inflation) is much higher than is stated in the official numbers.

Great interview. Michael Lebowitz is spot on.

Thanks for the great discussion! Very accurate description of the market.

This was good. All in, itching to get out, well said. Yes, please keep him in rotation.

Great show, guys. I wrote something back in the summer that touches on a similar theme. It's called "Waiting for Inflation" (https://medium.com/@mattdjohnston92/waiting-for-inflation-afc6495c6678).

Like. My Videos. Replay - memorize, Replay - memorize. Replay - memorize. ...

Very good. Thanks.

Excellent discussion. Extremely honest and pragmatic. This is where we are... I feel the pain of getting stopped out as well, but better to get stopped out and reenter with a CSEP than get hammered... It will be interesting to see how the K-shaped recovery shakes out. As Michael points out, there are mountains of debt built up, both public and private that need to play out. How that plays out and what the Fed and Treasury do will determine what companies get rewarded and what companies get spanked.

This is the best description of the current market I have heard and true for some time. The question is timing and the reason quants are so helpful. Excellent discussion!! Please keep Michael in the rotation.

Great show guys.

I long for the day of real interest rate price discovery.

Excellent, thank you!

Everyone sounds like Luke Gromen now. Must be a lot of FFTT subscribers.

Really top-notch. Don't tell Raoul. It was also like listening to Mike Green on a Deep Dive. Loved the Microsoft example on value overtime periods. Really makes you wonder about the inflation exceptions.

I thought QE was just a way of expanding a bank's balance sheet (swapping a non fungible bank reserve for a Treasury/MBS). Why is this inflationary, if banks aren't lending? Is this incorrect?

Phenomenal conversation!

More on Austrian Business Cycle, Minsky/Kindleberger, and speculative bubbles https://cdn.mises.org/Early%20Speculative%20Bubbles%20and%20Increases%20in%20the%20Supply%20of%20Money_2.pdf