This Time It’s Different……..Again

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Famous four words.

This time it’s different.

Those words usually “pop up” in order to justify why financial markets behave counter to common sense. Until they don’t.

Remember back to 2000 and the “dot com” frenzy was in full bloom? The internet was new and hot. Every business large and small had to have a web presence (dot com). Stock valuations soared higher than a Chinese spy balloon. Earnings were OUT. Only REVENUE mattered. Actually making money didn’t matter because……….wait for it……..this time was different. A new paradigm.

Until………

Certainly following the 2008/2009 financial meltdown, things did get a bit different. Global government central banks flooded financial markets with money, bailed out struggling businesses and basically ushered in an era of “free money.” Zero or negative interest rates? No problem. Take risk. Inflate asset prices. The Fed (central banks) will backstop you. It actually WAS different that time. Until……

A decade of zero interest rates, low (too low) inflation and strong economic growth ensued. Asset prices continued increasing. What could possibly go wrong? Uh, something called COVID. Lock-downs. Shortages. Economic growth stalled. But again, the government and the Fed stepped in with free money. Literally. While being confined to the house the “mail person” sent “confinement checks.” Life changed. Much of the free money went into stock & crypto trading, pushing up valuations (thanks TikTok and Instagram). No worries. The government and the Fed will always be there. Until…….

Well, lo and behold. This time it really is different.

After trying for years to get inflation back up to the “magical” 2% goal, the Fed (and all central banks) have a bit of a problem. Seems constantly creating free money, encouraging “risk on” investing and inflating asset values just might backfire. Toss in confining people to their homes (COVID), sending them money and creating shortages (labor, supplies, goods, etc.) just might have repercussions.

Repercussions by any other name means inflation.

Who could know? Looks like a whole lot of high ranking officials cut a few basic economic classes during their educational experience.

So this time really REALLY is different. The Fed is not coming to the rescue. No more backstopping. They realize that the inflation created previously in not transitory. Disinflation will take years. Money is flowing OUT of the system, not into it. The mail person isn’t dropping off “confinement checks” any more. Bond markets are flashing recession. Valuations are still pretty lofty.

But one thing that is different? Common sense is non-existent. Until…………