Thus, my base case is that we will find ourselves in a structural environment where debasement keeps occurring, but absolute hurdle rates and costs of capital are no longer declining (i.e. no more lower-lows in interest rates), and thus valuations for equities, houses, and other assets will have less of a structural tailwind behind them.

I instead expect a more gradual increase in the Fed’s balance sheet after a period of flatness. Certain shocks or events could lead me to adjust that view, but with the visibility I have now, that’s what I think is the highest probability outcome. We could perhaps call this the “The Gradual Print”, which is a friendly play on Larry Lepard’s book, The Big Print

This divergence is a common symptom of fiscal dominance and/or inflation.

It occurs similarly in emerging market recessions, where the economy is broadly weak but there’s enough debasement going on to push their stock prices up in their own currency. Usually in those environments, their stocks are doing poorly in dollar or gold terms, but doing well relative to the local currency.

The United States, when it operates in a state of fiscal dominance, is basically “emerging market lite”. In other words, it displays some emerging market characteristics, albeit wrapped in the less extreme wrapper of a developed market.

And so, for example, we see the S&P 500 doing fine in dollar terms but rolling over relative to gold for several years now, in what is becoming the fourth big stock-vs-gold bear market in modern US financial history. Basically, the S&P 500 to gold ratio over the past 5+ years looks roughly like we’d expect in a weak consumer sentiment environment, because that effectively filters out the dollar’s debasement from the equation.