43.2 Asset Bubbles & Money Financed Fiscal Expansion
How does one define an asset bubble? Might there be fundamental, non-speculative reasons why prices are persistently high? Also, why did money-financed fiscal expansion fail in Japan? What does that experience tell us about the present?

[Emil’s Summary] As many listeners have long suspected, your podcast host did, as a child, run away and join the circus.  Not dissimilar from a traditional childhood, it was your classic Gypsy camp.  If children misbehaved, we would be “lock[ed]… into stocks, or throw[n]… into a cage and hoist[ed]… into the flytower… dangling precariously over the stage.” Our ringmaster, Giuseppe Grimaldi “was horribly morbid, living in perpetual fear of death, and especially of being buried alive.  When he finally died… his will directed that his eldest daughter cut his head from his corpse just to be certain.” Sure, perhaps quirky, but certainly not the oddest troupe – not Pandemonium Carnival.

So, looking to make a career of it your podcaster tried his hand at clownship. But, by that time, famous clowns like Pagliacci, Pennywise and Pogo were, despite slaying their audience with their routines, giving a bad name to the profession. So then, this host turned to tarot card reading and hypnosis. Despite earning some minor acclaim in London as Madame Simza, your host simply didn’t have the chops and was forced to turn to the only option left: a Masters in Business Administration.

Surprisingly, it was an easy fit. Tarot cards – which “illuminate your past, clarify [the] present, show… the future” – had taught me everything I needed to know about finance. The card “Temperance, [when] inverted [is] indicative of volatility.” If one draws “The Fool, someone has been led astray” – an investment fraud. “The Two of Cups?” It represents “a powerful bond” – a sovereign bond. Your podcaster learned about hypnosis too, except that the economics professors used different terms for it: expectations policy, forward guidance, moral suasion.

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———WHO———

Twitter: https://twitter.com/JeffSnider_AIP
Twitter: https://twitter.com/EmilKalinowski
Art: https://davidparkins.com/

Jeff Snider, Head of Global Investment Research for Alhambra Investments with Emil Kalinowski, troubled by definitions. Artwork by David “Zoltar” Parkins. Podcast intro/outro is “Whispering of the Stars” by Luella Gren at Epidemic Sound.

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———WHEN———

00:05 How does one define a bubble?
03:39 How does one define obscenity, money or a concentration camp?
07:10 Fundamental drivers of bond prices: economic activity, inflation and liquidity/collateral.
09:15 How to exit an economic depression if central banks have been incapable of ending them?
12:00 What is “Money Financed Fiscal Expansion”?
16:14 Why did money financed fiscal expansion fail to save Japan from its depression?
19:24 How did the Japanese bond market respond to money financed fiscal expansion?

———WHAT———

The Fundamentals of the Bond ‘Bubble’: https://bit.ly/3qI1D6c
When They Introduced An Even Longer Gov’t Bond: https://bit.ly/3qCYhBw
They Keep Assuring Us Japan Can’t Happen Here: https://bit.ly/39UfwHP
What is a Concentration Camp?: https://bit.ly/3iCN6G2
Alhambra Investments Blog: https://bit.ly/2VIC2wW
RealClear Markets Essays: https://bit.ly/38tL5a7