The reason why market prices look so high is because it’s priced in US dollars, and US dollars aren’t worth what they used to be.
The reason why markets go up when the Fed seems completely unconcerned or helpless to stop the worst inflation in decades, is because people are betting that this trend will continue.
If you re-price the market in another unit of measure, like “ounces of gold”, you will get an entirely different picture.
> If you re-price the market in another unit of measure, like “ounces of gold”, you will get an entirely different picture.
If you price the dollar in terms of ounces of gold, then you would think that the dollar is worth more than it was in September of 2011, and you would think that the dollar is worth more now than it was in August of 2020. While gold is stable over the long term e.g. centuries, its price can be quite erratic over the short term.
You can price it in barrels of oil, silver, copper, a collection of other currencies, bitcoin, median house price and get a different answer each time.
> The reason why markets go up when the Fed seems completely unconcerned or helpless to stop the worst inflation in decades, is because people are betting that this trend will continue.
It's a global phenomenon. We've got less production of goods and commodities because of covid and just as much if not more demand. So supply down, demand even or even up. What do you expect to happen?
While the USD has problems, other currencies seem even worse at the moment.
There is not some other fiat currency at the moment that is better than the USD. Things that people think are hedges BTC(Ponzi scheme), Gold(volatile) don't always work well.
“Real price of gold” is an interesting concept, probably showing a statistical quirk of backtracing CPI than anything useful though? I’d have to study how it was calculated.
Yes, your graph at the end showing SPY in gold falling below the 200 day MA is exactly what I was talking about.
I absolutely agree gold is volatile in the short term and not some magical replacement for fiat currency nor an absolute indicator of the level of inflation in an economy.
Sometimes however it’s important to figure out if the “platform” you’re taking your measurement from isn’t actually what’s moving, rather than the thing you’re trying to measure. If you’re going to step outside of the fiat viewpoint, gold is where I’d usually start.
Maybe a VIX-adjusted price of gold or something like that could be useful to smooth it out.
> “Real price of gold” is an interesting concept, probably showing a statistical quirk of backtracing CPI than anything useful though? I’d have to study how it was calculated.
I agree it's interesting. I'm invested in Gold, so I'm basically betting that it's going to go up. Instinctively, I'm looking for the best disconfirming evidence.
> If you’re going to step outside of the fiat viewpoint, gold is where I’d usually start.
> Maybe a VIX-adjusted price of gold or something like that could be useful to smooth it out.
yeah, I'm not really sure what the best way to look at it is. I believe Adam Smith used minimum price of labor, but that's distorted as a signal by minimum wage laws. I find the big mac index to be useful-ish. idk, perhaps something like median cost of an hour of labor per big mac, is a measure of prosperity.
The reason why market prices look so high is because it’s priced in US dollars, and US dollars aren’t worth what they used to be.
The reason why markets go up when the Fed seems completely unconcerned or helpless to stop the worst inflation in decades, is because people are betting that this trend will continue.
If you re-price the market in another unit of measure, like “ounces of gold”, you will get an entirely different picture.