Friday, September 3, 2021

The Flight To Trash

We are all familiar with “flight to safety”, the tendency of investors to choose safe investments like bonds and precious metals in times of crisis and uncertainty. What constitutes “safe” is, of course, always up for debate, but you get the picture…

Well, we are now becoming very familiar with “flight to trash”, the notion that just about anything can be an investment vehicle. From cryptos and NFT “art”,  all the way to dubious SPACs, wacko IPOs and meme stocks boosted by rabid teenagers using their phone trading apps.

This lunacy is possible only because the Fed (and ECB) are continuing their cash deluge, blackmailing even belt-and-suspenders type investors to participate in this “flight to trash”. Cash is obviously (?) trash, investment grade bonds nearly so (or worse, in negative-yield Eurozone), even junk bonds are at record low yields. Hooray, let’s buy it all - dear me, even serial bankrupt Greece is at 0% yields 😱😱

The Fed keeps pumping and the cash is spilling over, backwashing into its own reverse overnight repo, now at $1.1 trillion. I know, I’ve posted about this a zillion times, but the sheer audacity of central banks ballooning their balance sheets still amazes me - charts below.

I wonder, like Bill Gross did in yesterday’s post, what the following chart will look like if/when (a) the Fed stops pumping and (b) earnings don’t match the extreme stock valuations. Maybe we should all start thinking about flight FROM trash… Note: current P/E for S&P 500 is at 35x while the median since 1950 is 15x.


  1. ok, I'll bite.... people are assuming Wiemar Germany.... given current debt loads, including social security and climate change and aging population.... all together..... it is not exactly irrational... No?

    that is the superficial answer... the deeper answer I think is that money no longer reflects social contribution (gates is did not contribute many billions to everyone)..... If money is to keep its worth, society needs to restructure..... but society does not want to... money printing bridges the gap until it cannot.... just like in Wiemar...

    1. Weimar, or mass bankruptcies that deflate the global economy to a point where climate change is properly dealt with?

    2. They'll just print more? Until it really collapses sometime far into the future?

    3. Lets think of ourselves as a huge extended family and money as the social currency by which we acknowledge the contributions of various members.

      If a family member hurts the family but instead of being punished, he is praised for his contribution. In that case, either the praise (money) becomes nonsensical or the family disintegrates. Problem for us is that our leaders are indeed giving out praise (money) in exchange for deeds that hurt us. For example, Elon, etc... In this circumstances, it is better that money become worthless rather that we acknowledge that Elon is a legitimate billionaire.

      The Fed? It is doing God's work. =)

    4. Haha... Some type of Greek mythology diabolical kind of God, but yes Lol.

    5. Money as Nemesis, I love it πŸ˜„πŸ˜„πŸ˜„

    6. Unfortunately, if Musk's money becomes worthless, imagine our own, poor won't begin to describe us... ;(

    7. I suspect there is a need to move away from valuing things using money. If we strip away money, we can begin to see things for what the are.

      Let a man be valued by the sharpness of his wits, the love in his heart, the skill of his hands, the music of his soul; rather than the size of his bank account. Let art be valued by its beauty rather than resale value. Let us look to make the world better rather than ourselves wealthier. Who knows, it may actually be a nicer society. =)

    8. Noble thoughts AKOC… now, maybe we can package them as a NFT and sell it for million$$$ 😱😱😱

    9. There is a modern Chinese folk saying: I am so poor that the only thing I have left is money...

      Sort of a good summary of modern life eh... =)

    10. To put it in less idealistic terms..

      I guess the question really is how do we keep the $$$ that we have rather than how to make more of it... I strongly suspect everyone on this blog is more than comfortable....

      And I think the answer is that we cannot..... And the follow up answer is that even if we loose it all, it may actually be for the better....

    11. Yup... I've heard it as: "Some people are so poor, the only thing they have is money."