I have been asked to keep this website open and link it to users of the Generative AI program I plan to launch. This will become a place for me to comment on important current events.
What’s happening now?
The dollar is rising while all other currencies are declining because our economy is doing better than any other G20 nation. By those metrics, America is clearly winning the cold war. However, it is involved in two hot wars that are not going well. Also, Biden is spending more than any other country even though we have the highest debt to GDP ratio.
I encourage you to read Jennifer Burns new book, The Last Conservative. She cites monetarist critiques of that huge flood of helicopter money, created by two presidents and three Fed chairs, who pumped $ 9 trillion into the economy. It did not immediately cause the inflation we are having, but it is coming.
The gigantic peak of M2 in 2021, and subsequent plunge, is a monument to the ineptness of presidents and Keynesian economists to manage the economy and manage the Fed properly. The policy changes they implemented are so drastic, I don’t see how it can be corrected without a lot of pain. Based on Powel and Biden’s past behavior, I expect more over corrections. They tried to bring us back to the 1950’s when we were an industrial superpower, but those days are gone forever.
What could go wrong?
- If inflation continues to rise and the Fed raises interest rates, recession fears could also rise and the stock market could drop a lot. Small probability.
- If China Blockades Tiawan, the stock market would probably drop a lot even if America does not respond. Small probability.
- If China ups the ante in the trade war, that would probably increase our inflation because we would be paying more for goods and it would increase our debt problem. The market could probably drop a lot. Small probability.
- Whether Trump wins or loses the election, chaos could rain. Probable.
- What if AI causes chaos to rein, as many fear?
Stop right there. Probability theory is not a good tool to measure the risk of one of these chaotic events, and 5 possible chaotic events is not just 5 times worse. Stop thinking of risk in terms of probability. Read chapter 26 of “Thinking Fast and Slow” by Daniel Kahneman. Beware of the risk you don’t know how to measure! Parachute jumping has a very small probability of risk. But if the chute doesn’t open, you’re dead!
Post Modern Portfolio Theory (PMPT) 
I.e., money circulating on the financial markets is transfered into the real economy when investors heavily shift their asset class allocations into newly emitted bonds and, to a lesser extend, shares. Looking into the trade volumes, I do not see that right now. But I might look into the wrong data sources.
I am trying to put the link to my chatbot on my website without success. You can try putting this into your internet: app.soopra.ai/sortino-chat. cursor down to CHAT and enter your question. The text input is more complete that the voice at this point. Let me know if that works.
User Guide
Sortino-chat is a Generative AI program designed to provide another perspective on investment decisions. My Avatar will answer your investment questions but will not give investment advice on what to buy, when to buy or where to buy. You will be asked to get a password so you can easily sign in again. We will not give your personal information to anyone for any reason. We will soon be able to offer our proprietary software to calculate your Desired target Return (DTR) and the upside potential ratio, using a 3 parameter lognormal distribution instead of a bell shaped curve to describe uncertainty.
To test my new Chatbot, hold down the control key and click here, Soopra . When on the opening page, cursor down to CHAT. Click in the Chat block and enter your question. Then click on the send arrow. A Circle will spin around my picture. When it stops, read the chatbot response to your question. When you finish with Chat inputs, Click on the Voice Icon. It will say, Speak. Speak your question. Click Icon again and my Avatar will search for the answer. Give it a few seconds, then press again to hear the answer. You will hear my Avatar answer in my voice. The Chat inputs produce more detailed answers than the Voice inputs.
Please use both Chat and Voice inputs. I will see your questions and the chatbot’s answers. I can then edit the answer to improve it, if necessary. That way my chatbot will get better and better as I can address questions I would never have thought of. In this way, I hope to make an improvement in the way investors make decisions. I encourage you to tell me if you disagree with my beliefs. What you disagree with may be important for you and me to hear. In this way, we can both become more knowledgeable. I look forward to hearing what you have to say about your experience.
FAQS:
1. What is generative AI?
2. What is the difference between valuing a bond and a stock?
3. What is the difference between upside potential and upside probability?
4. What is utility theory?
5. Where is the best place in the world to invest?
You have a very good grasp of economics and financial theory. How did you come by this?
Simple logic. As long as A buys an financial asset from B and B buys another asset with that money etc., the money circulates on the financial markets and does not reach the real economy. But the money spend for fresh bonds goes into the pocket of the emittent, who usually spends that money to do something in the real economy. At least this holds true for corporate bonds and treasuries. Of course, bonds and other debt instruments emitted by financials are a different story. Fresh bonds to lengthen existing debt is another important exception, too. Please correct me if I got that wrong, I’m not an expert.
What you are talking about is called the Money Multiplier effect. It used to work when the Fed had almost absolute control of the money supply. They do not have that anymore. The Fed is more interested in controlling interest rates. The result is a mountain of debt that the World Bank calls: Unsustainable.
The concept of a “money multiplier” is often critizised; there is no broad consensus that this concept has any value beyond over-simplistic academic models.
The Fed did not produce the unsustainable debt of the US. Instead it was numerous decades of spending for the military and wars in the same height as the whole rest of the world, while the US’ GDP was not the same as the rest of the world alltogether. Now the result is: US interest payments = military spending. Ouch!
You’re right concerning DJT: nowadays, investors have to treat political risks in the US more or less the same like for an emerging country…
Concerning China, please remember that China is the largest foreign creditor to the US. They’re not interested in a weak USD or a decline of US treasuries, because they would lose a big bunch of money. This could be a factor to let them act cooperatively. Vice versa, the US can use these debts as a weapon, because they can live with a high inflation, as long as the job market does not suffer. Chinese policy makers already pointed to this a few times.
Yes, China used to be the largest holder on treasuries. But since Trump was president, they have been reducing their Treasury holdings and shortening maturities. The last few years they have been the worlds largest buyers of gold. What does that tell you?
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Chinaman is a clever man!
I think you are right!
Beeing an interested layman who just started to dive deeper into these matters (“My biggest problem is that just about everything is interesting” (Richard O’Keefe)), one of my biggest aha experience was that economy and money theory is not an exact science: the QTM is by no means consensus, and neither side can prove or disprove it.
“[…] that huge flood of helicopter money, created by two presidents and three Fed chairs, who pumped $ 9 trillion into the economy. It did not immediately cause the inflation we are having, but it is coming.“ OTOH, there is a clear long-term trend of declining velocity of money. Second, long-term saving in immaterial properties (shares, other capital participation, maybe cryptos) and luxury goods (1st class real estate, art) binds a huge amount of money that does not rotate in the real economy and thus does inflate the prices of only those goods. Of course, some — but not all — of that money “drips down” into the real economy, but this happens slowly.
“They tried to bring us back to the 1950’s when we were an industrial superpower, but those days are gone forever.” But the so-called “reshoring” after the Corona shock is real. How large the effects will be remains to be seen.
IMHO, what’s most dangerous is the effect of the “hot” wars that are happening, because these erode the durability of productivity — ammunition literally explodes. Maybe this is the biggest inflationary driver.