Had an interesting talk with a friend the other day. His take is that all of the talk about companies, earnings, rotation, the usual bullshit, which seems, on any logical basis, completely disconnected from reality because share prices are so high that it is obvious that the general stock market has no connection to fundamentals but is completely a speculative, all of this talk he believes, is nonetheless the narrative on which people make decisions. It is on one level, a fundamental level, completely absurd to talk about valuations, even relative valuations, because prices are so disconnected from earnings, but on another level, the level my friend was describing, it makes sense. People, even institutions, invest based on stories not logic. The stories are as relevant as ever except for the nasty little fact that there is no way earnings can ever justify the current prices, but removing that irritating fact, the stories are just as relevant a way to compare companies as ever. It is as though the stock market has become a video game. The narrative of a video game bears no reality to the real world, but within the realm of the video game it is everything. So it makes almost perfect sense, in a way, that we would have created out of the stock market a fake world in which the narratives, this company is cheaper than that company and so on, would still be meaningful. To a large extent these days we all live in a virtual world and the real world only intervenes occasionally, and when it does, as with this pandemic, people are likely to disregard it if the reality is inconvenient for them. I have always been more interested in what is real, but that is a quaint illusion. What is real, anyway, especially when you are talking about markets? The million dollars made speculating in TESLA is every bit as real as a million dollars earned any other way. At least if you turn it into dollars and use it to buy something.

And then back to reality, my weakness, where and when does the illusion break? The dollar can’t weaken because it is the only reserve currency. Apparently the government can borrow and spend almost without limits because the currency can’t be debased and inflation doesn’t look like it will happen ever or certainly not as long as they government doesn’t actually print money to pay debts but simply borrows money by issuing bonds. So what gives? And when it does give how bad is it?