Bitcoin will likely test the record highs tonight. Gold recorded the highest closing price on record today. The Japanese stock market (Nikkei 225) is now trading above 40,000. It has surpassed the 1989 record highs.
Microsoft is a $3 trillion company. It added a trillion-dollars in market value inside of two years. Nvidia is a $2 trillion company and it added a trillion-dollars in market value inside of just seven months. And it looks like that record might be shattered on the next trillion-dollars.
Is this all reflecting global capital seeking store-of-value? Is it reflecting devaluation of paper currencies? Is it reflecting flight to relative safety, and shock risk surrounding government shutdown, wars, domestic or geopolitics?
Or is it all reflecting the outlook for growing the size of the economic and stock market pie, driven by the technology revolution?
History would suggest the latter is the overwhelming economic force – the power of technological advancement.
As we've discussed, generative AI might be the most productivity enhancing technological advancement of our lifetime. Hot productivity gains promote wage growth, which is needed to reset wages to the increased level of prices (which restores quality of life). And it can fuel wage growth without stoking inflation. And as Jerome Powell presented back in 2016, productivity growth is a driver of the long-term potential growth rate of the economy.
This brings us back to the point we've been discussing over the past several years here in my daily notes. We need a period of hot nominal growth (an economic boom), to inflate away the massive debt boom of not just the post-pandemic era, but the post-Global Financial Crisis era.
We hear a lot about the $30+ trillion government debt load. That said, the absolute value of the government debt doesn't mean much. The debt relative to the size of the economy is what matters. And as you can see in the chart below, debt has nearly doubled relative to the size of the economy since the Great Financial Crisis.
It has to be inflated away. That comes through hot nominal growth. It looks like it might happen, despite Congress's best efforts to squander trillions of dollars of fiscal spending that should have fueled it.
