Monday, March 11, 2024

SPX, COMPQ: Putting Out the Fire with Gasoline

I normally don't comment on the machinations of politicians, but this is relevant to the market, particularly as it relates to the Fed and to inflation.  

In his State of the Onion (a million years ago, when my little sister was just learning to read, we were in the car one day and she was trying to read every business sign we drove past.  We passed "Union Bank" and she dutifully recited, in her monotone, "Onion Bank" -- and my parents and I laughed.  But, unbeknownst to me at the time, my sister had unwittingly doomed me to constantly call union "onion" for the next 40 years and counting.) Address (yes, we're still in the same sentence here!), Biden proposed that "instead of waiting for inflation to come down," he wants to give away a bunch of money to homeowners and wannabe homeowners (i.e.- presumably to everyone) immediately.  

Most of us who didn't flunk Econ understand that flooding the money supply with more dollars is the exact thing that causes inflation in the first place (see: Covid stimulus, Fed printing, etc.).  Printing more money without a corresponding increase in production doesn't create wealth for the same reason that printing more first edition Superman comics would drive the value of each comic down:  The more abundant a resource is -- be it comics, gemstones, or cash dollars -- the less each unit of that resource is worth.  For this reason, printing money only makes existing dollars worth less (new money, without production, has no choice but to steal a portion of the value from existing money, which is the one and only reason newly-printed money is assigned any value at all).  We experience this at the ground level as goods and services costing more -- aka: inflation.  But really, goods and services haven't gone up, the value of our cash (and our savings, and our wages) has instead gone down, so it takes more dollars to buy everything.

Anyway, this proposal, were it to pass, is a sure-fire way to create more inflation.  And probably to drive the cost of housing up even further in the process, to boot.  Hence today's title.  To frame "more free money" as some sort of solution to inflation is akin to suggesting that more water is a solution to drowning.  So, it may be relevant to keep an eye on whether this proposal gains steam or not, because if it does, it will likely force the Fed to keep rates higher for longer.

Market-wise, we had a down day on Friday, coincident with COMPQ hitting next resistance -- but bears still have work to do to make it more than that:

COMPQ first:

SPX, which discusses what bears would need to do next:

And, just because it's out there, a little discussion on some bigger-picture bull and bear options:

That's it for today.  Now, using politician logic, I'm going to go conduct an experiment to find out if pouring more water in a clogged sink will finally stop it from overflowing.  Trade safe.

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