June 19, 2020
As we end the week, let's revisit this concept we've been discussing for the past three months, of the "global reset." This is where prices and wages, globally, will have to reset higher.
This is what happens when policymakers make the choice to destroy the value of money — which they've done.
This past week, we've talked more about the wage story (higher wages), which is already materializing.
And as you can see in the graphic below, the "asset price" story is already unfolding.
Above, we're looking at the three month change in prices of major commodities, financial assets and currencies. All up, dramatically. No coincidence, this three month period takes us back, nearly to the day, the Fed went all-in, with the most dramatic intervention in the economy we had ever seen.
Of course, that response has only been expanded since, and will likely be expanded more.
Remember, as we entered this crisis, with all of the unknowns, we knew one thing, for sure: The Fed and global central banks would do "whatever it takes." Whatever line had been drawn, had been crossed in the Global Financial Crisis response. That set the standard for central bank action. From that point forward, it's "whatever it takes" to preserve stability and promote growth. If the rules get in the way, they will change the rules.
With this in mind, I want to copy in an excerpt from March 24th note – the day after the Fed's big response, and the day after the bottom in stocks. "Make no mistake, with global governments and central banks following the 'print and backstop everything/everyone policies' we have explicit devaluations of currencies. That makes it a 'buy everything' market."
The above graphic is proving this out, and it's in the very early stages.
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