August 26, 2023

A Series Of Improbable Events

A Series Of Improbable Events, By Way Of A Series Charts

The last three years will invariably be discussed for centuries to come.

In some sense, we experienced a handful of "once in a century events" all simultaneously.

In the history of America, some analogues to these "once in a century events" events have been:

  • The industrial revolution, which surfaced prospects for fantastic wealth creation, which produced asset bubbles such as Railway Mania in the mid 19th century.
  • The virulent pandemic that was the Spanish Flu in the early 20th century.
  • The Great Inflation of the 1970s, which corresponded with the extraordinary interest rate hiking cycles witnessed during that period.
  • The Savings & Loans Crisis of the late 1970s.

Almost unbelievably, we have experienced a version of all four of these historic events in just the last 36 months.

Below, we will review our modern equivalents to each of these events, all of which have transpired in just the last 36 months.

America's Industrial Revolution And Railway Mania

Note that the Bank of England's tightening of monetary conditions precipitated the collapse of railroad asset valuations. Central banks' tightening of monetary conditions is likewise what precipitated the collapse of many asset values in the last couple years.

America's 4th Industrial Revolution And Zoom Mania

During this period, as you're well aware, we also experienced a pandemic, the magnitude of which we'd not experienced since the early 20th century when the Spanish Flu outbreak occurred.

Spanish Flu: Deaths Per 1,000

To be sure, covid-19 was nowhere near as deadly, and I am certainly sympathetic to the controversies surrounding the perception that it was.

Ultimately, though, we, as a planet, excepting Sweden and Florida, decided it was prudent to lockdown our economies for nearly two years and print "lower and middle class destroying" levels of money (1.4x'd the money supply) during this period.

Covid-19 Flu: Deaths Per 100,000

Speaking of inflation, in conjunction with these events, we subsequently experienced a "Great Inflation" not seen since the 1970s.

Which has precipitated the fastest interest rate hiking cycle in American history.

The Fastest Interest Rate Hiking Cycle In American History; Note That This Interest Rate Hiking Cycle Has Outstripped The Pace At Which Rates Rose During The Great Inflation Of The 1970s

And this incredible, precipitous rise in rates served to create the Regional Banking Crisis, an event not witnessed since the late 1970s.

Bank Deposits Vs Money Market Assets (1971-1981; Look Familiar?)

Bank Deposits Vs Money Market Assets (April 2022 to March 2023)

Concluding Thoughts

With inflation crushing lower and middle classes (due to aforementioned relentless money printing) alongside dramatically higher rates, the yield curve has also become "once every 50 years" inverted.

An "inverted yield curve" usually precedes a recession, as you can see in the chart below.

Seeking Alpha

U.S. Credit Card Interest Rates Are The Highest They've Been In Over 30 Years

Indeed, in some sense, we've experienced the history of the world in 36 months.

At some point, we will return to a relatively more benign environment, though only time will tell when that period will come. Once that period comes, L.A. Stevens coverage universe will likely experience exceptional reacceleration of growth atop healthy unit economics and pristine, well-capitalized balance sheets.

Thank you for reading.

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