In today’s Money Morning…good consensus and bad consensus…earnings will be ‘good’ because fiat is becoming worthless…it’s a psychological illusion…and more…
There are two things on the minds of old money suit types this week, and that’s the upcoming earnings season on Wall Street and the latest Consumer Price Index (CPI) release out of the US.
Today’s piece has two parts.
First, I’ll start with a few words on how in the traditional finance market, consensus is a sign of an impending crash. Then, a potentially controversial view on this earnings season and a discussion of how the inflation debate affects crypto.
Let’s start with what’s probably going to play out over the next week.
After punching to new all-time highs in anticipation of killer earnings, the S&P 500 could face a sell-off on a higher-than-expected CPI readout, followed by more consoling words from Fed Chair Jerome Powell, which in turn may lead to more market exuberance.
Up, down, crash, or boom, ad infinitum.
Good consensus and bad consensus
There’s a big rinse and repeat feel to markets at the moment, and I recently fielded a call from a friend who was worried about the share market and is also a crypto sceptic.
I told him that it’s not quite time to be worried about the old money market just yet, for one simple reason.
Namely, the market hasn’t quite reached consensus on what asset class to be in at the moment — which is a good thing.
Consensus usually comes just before a crash. When everyone agrees on how to get rich, you best believe a good chunk of them are about to become poor.
Sure, equities/stonks are favoured, but bonds have edged back into the picture as the yield on US 10-Year Treasuries sits at 1.368%.
Meanwhile, there’s a bit of action in the slumbering gold space, US property remains elevated, and commodities are back on a tear after China cut their reserve requirement ratio by a chunk, releasing $206 billion into their market.
It’s why Ryan Dinse said yesterday:
‘If you’re not playing the game, you’re falling behind.
‘Money has all the value of a post-lockdown toilet paper stash, so spend it as fast as you can.
‘Don’t think, don’t save, just buy!’
Importantly, he didn’t say — ‘Buy this specific asset class.’
Which leads to this important distinction between old and new money — that is, while consensus is terrible for old money suit types, it’s great for new money crypto types.
One of the core parts of any blockchain system is its ability to generate consensus.
Meanwhile, traditional finance systems work for suit types because they profit from disagreements in the market on what’s the preferred asset class.
Is gold a buy? What about this stock? When’s the right time to get a house?
Do a bit of research, call up your other suit mates, and if you get in before others, presto! You’ve made a buck.
Who knows what and when is the name of the game. In more complex language — this is a game that runs off informational asymmetry.
And to repeat, when everyone knows that ‘this investment’ (insert asset class) is the only game in town, it’s time to get worried.
Which brings me to a potentially controversial thesis — this may be the last truly meaningful earnings season we’ll ever see in the old money system.
Earnings will be ‘good’ because fiat is becoming worthless
Just watch it unfold.
Heavy hitters like JPMorgan, Goldman, PepsiCo, Citigroup, and Wells Fargo will smash it.
Put enough money into the system and, of course, the big boys will do well.
The market will love it — the good times are back!
Meanwhile CPI numbers could surprise to the upside and then the market will pause for breath.
It’s a legitimate concern.
There’s the fact that US used and new car prices are going through the roof, and stories of supermarkets stocking up on essentials.
The reason for this is simple and plays into the hands of Bitcoin [BTC] and crypto more generally.
This is what Bloomberg Intelligence analyst Mike McGlone said in a report yesterday:
‘The benchmark crypto has a solid price foundation, considering it’s unlikely we’ll see a reversal in the race to debase…When measuring the value of an individual currency, the dollar, for example, may be strengthening or weakening versus a basket of like legal tender. Yet, it’s the entire fiat-currency market that’s declining.’
Old money suit types insist bitcoin is not a valid inflation hedge because it goes up and down too much.
But that’s also the most flagrant short-termism I’ve seen in market analysis.
This is the nature of the floating fiat currency beast — with no frame of reference you can’t see its declining value.
If they all go down together, then whichever country debases the least is suddenly the most valuable.
It’s a psychological illusion.
The retort from crypto sceptics is the same.
But when those CPI numbers come out, we’ll get a real sense for fiat’s increasing worthlessness.
And to be clear, sticking in fiat cash is not the preferred option.
Which is why I think this earnings season will be the last meaningful earnings season of its kind before the concept of money starts to change in a big way.
Great earnings, blowout rally, correction, inflation, central banks launch ‘new money’ CBDCs to fix a problem they created, crypto renaissance, and then a global battle to determine what’s really money.
That’s the version of future events I subscribe to.
For Money Morning
PS: Lachlann is also the Editorial Analyst at Exponential Stock Investor, a stock tipping newsletter that hunts for promising small-cap stocks. For information on how to subscribe and see what Lachy’s telling subscribers right now, please click here.