The S&P 500 Chart Is The One That Matters

This post was originally published on this site

I’m pretty bearish but it doesn’t mean the market will go down. Many people look at the indices and see a bubble, but even if they are correct it doesn’t meant the bubble will pop soon or ever.

Many people say the market is too high and it can’t go up forever, but they are wrong. There are all sorts of scenarios that can mean the market can go much higher and never come down ever.

People like me say Apple AAPL can’t be $5 trillion, but I thought the ceiling for its value was $1 trillion but now its $2.5 trillion.

Here is one picture that explains how values can go up and stay up:

This old $20 dollars is now worth about $2,100 as a piece of gold. The price went up x100 but arguably the value is unchanged. A postage stamp can cost 4 billion if you get hyperinflation. As such there is a cone of probability of where indices go from here, economic growth or no.

This is only a place to start. What we need is a clear roadmap and luckily for us there is one. Actually there are two.

The only thing driving prices of assets, and for that matter general stuff, is the Federal Reserve. Here is the chart of the fresh money they have printed, or as they would put it, their balance sheet growth:


You might imagine a little recent deceleration of the acceleration, but while this chart is key, for the investor there is even a clearer signal:

It’s even more ridiculously linear if you take it from the start of the year:

Really this is all you need to know because while the Fed are fixing the market this chart is going straight and when it stops going straight, it’s going straight down.

I’ll try and make it clearer:

So the inflationist versus deflation debate will be settled by the progress of the S&P 500 because to keep this trajectory the Fed will need to keep printing, which will be inflationary, and funnily enough as the value of money goes down the price, not necessarily the value, of assets rises and of course visa versa.

The S&P 500 trend is so tight, how can it not be the only trend you need to know about? Can it hold? The answer is, yes it can. Can it hold without strong inflation? No.

Can the S&P 500 slow its rate of decent and still keep watchers holding the faith? Probably.

Will deflation happen? If that is going to be the future you will see stocks snap out of this channel and dive well before that strikes.

What I think will happen is that there will be a slowing of the angle of ascent followed by an attempt to hold the market on a course that suggests a not-too-hot inflation environment. However, there is so much to go wrong, especially with Covid-19 variants, that the outcome of a quick return to normality is not particularly likely.

The world is still digging an economic hole for itself and it will take a long time to fill it in. If history is anything to go by, the value of money is highly likely to be rebased and if that is the future then the S&P 500 is going to keep going straight up.