Thread by @allenf32

I'm almost embarrassed I never thought to try this before, but this is a long-term graph of the S&P 500 *as priced in gold*.

let's call it Cantillon's graph. it is utterly damning and it should make you very, very mad.

h/t @TuurDemeester

🧵

to quickly get out the way why this distinction matters, gold can fluctuate in *price* over short periods, but has historically maintained its *value* over very long periods, as defined by its purchasing power, effectiveness as an inflation hedge, whatever floats your boat.

it's important to remember that gold has almost no actual uses. it's not expensive (say, in dollars per gram) because it's shiny. it's because there is very little of it and it costs a lot to get more, so the annual rate of new gold to existing gold is very low.

this makes it an excellent way of stably recording existing wealth because basically nobody can arbitrage across the expense of getting more and the value they would then have.

gold literally has value because it is good at maintaining value.

so, if you want to know if something has become more valuable in real terms, you price it in gold.

Amazon, Netflix, and Bitcoin have created an enormous amount of value (Bitcoin is on a log-scale because you can't read it otherwise)

this is probably not a surprise.

GE has lost a lot. ditto.

but the market as a whole goes up, right? everybody knows that!

no. no, it doesn't.

we are not now "correcting" from a run of ATHs.

we had *nearly* gotten back to the brief period of stability in between the finance-induced nightmare of 2000-2002 and the finance-induced nightmare of 2007-2009.

nearly, but now probably not.

that might not be so bad on its own. there is no value that morally ought to exist in stock markets.

but there is the question of who benefits from the value that stock markets create.

if everybody benefited equally, there would be nothing to discuss. but they don't ...

some people benefit from stocks going up in real value in the long term, and others benefit from stocks going up in fake value in the short term.

obviously, by 'real value', I mean the stable measure of gold, and by 'fake value', I mean the inflationary measure of USD.

the people who benefit from real value in the long term are savers who use stock markets to contribute capital for investment projects through their pensions.

this is straightforward to grasp.

the people who benefit from fake value in the short term are paid based on what this value happens to be.

there are two obvious examples: executives "incentivised" by options, and bankers/traders/financiers/etc who are paid commission based on the value of the underlying.

notice two interesting things about this grouping: i) they are by far the biggest cheerleaders for "markets" in the abstract, and support from the Fed, and ii) to them, stock market value determines income, but not wealth. they are not necessarily fully invested.

the people who seek to benefit from real long term value creation in stock markets don't have that option. they are by definition fully invested.

stock market value is a stock to them, not a flow.

it is only a flow to those who are parasitic on its value as a stock.

so savers get slightly less of a stock because it is constantly skimmed by the flows going to the parasites.

that would be true to a small extent with a real measure of value, but is dramatically exacerbated with an inflationary one.

access to inflationary measures of value brings the parasites out of alignment with the savers. they no longer benefit from allocating savers' capital *well*, but instead from *re*-allocating it often enough to drive fake value.

of course they pretend there is no difference.

the savers couldn't possibly save, say the parasites, if the parasites didn't "keep the markets ticking over" and other such bullshit that really means using savers as cover to get priority access to newly minted fake value (USD) that can be flipped to real value ASAP.

this is what Cantillon's graph shows.

if you compare it to the normal S&P 500 chart in USD, the striking visual difference between the two is really the difference between the value actually created and the value that financial parasites pretend has been created.

this invites a subtle mathematical point that invokes ergodicity and is in the vein of the Kelly criterion:

parasitic wealth growth is cumulative in draws from the fake value chart, because they do not need to stay invested. the worst a crash can do is slow the rate of growth.

at the same time, saver wealth growth follows the actual path of the real value chart because they *do* need to stay invested.

as can be seen, recent crashes have eviscerated real wealth.

not only are parasites relatively unharmed by crashes, but they are directly incentivised to campaign for the continuation of a process that, in part, causes crashes in the first place.

which is exactly when you can expect parasites to leap into action to demand that "markets be stabilised" - not for their sake, of course, but "for the good of all the poor savers. the hardworking men and women of America. you don't want them to LOSE THEIR SAVINGS, DO YOU?!?"

what is really being asked for is that the process of corrupting the fake store of value so as to siphon real value towards themselves be reset and run from scratch.

this can only happen with a measure of value utterly lacking in integrity assurance:

medium.com/@allenfarringt…

so, expect this soon.

https://twitter.com/Melt_Dem/status/1232455974536925184

but not forever ...

bitcoin.org/bitcoin.pdf

p.s. intelligent commenters have pointed out that I should have used S&P total return. I agree. my bad. proper chart attached, but there is very little difference.

stupid commenters think this thread is about what you should be investing in.

this thread has absolutely nothing to do with the investment merits of gold, equities, or anything else.

it's about the mechanics and morality of value extraction from stock markets with access to fiat inflation and political cronyism.

p.p.s. I've just discovered this fantastic @joelkotkin article discussing the social and political consequences of all this (he doesn't put it this way, but I absolutely would) that more or less picks up where I leave off:

quillette.com/2020/02/27/the…