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Hello and welcome! Here's our economic, geopolitical, health, and stock market overview. It's Wednesday, April 7th, and to understand how the financial world works, you'll find yourself on the stock market daily, nowhere else. Today's episode is titled "Jamie Damon Makes a Revelation." Jamie Damon, for those who don't know him well, is the head of the world's most powerful bank, JP Morgan Chase.
He was an advisor to Barack Obama and is the key contact for members of the Fed. He's something of an oracle of Wall Street. And so, he's making a revelation: according to him, stock valuations are high regardless of the valuation method used. But thanks to Joe Biden's stimulus plan and the explosive growth that could continue until 2023, current stock prices could be justified within two years.
Good heavens, of course! We were wondering why the SNPI had risen by more than 80% since March 18th. 2020 and why we kept breaking all-time records, but how could we have forgotten that Wall Street had already factored in the facts: the 1.9 trillion dollar Leaflet plan, plus the 2 trillion dollars that will be discussed, the billion dollars for upgrading core and American infrastructure, plus the energy transition, plus 5G for everyone, plus clean water from every tap, and we missed that!
We're really sorry we missed that. So, 1.9 trillion dollars, plus 1 trillion dollars, plus probably another 1 trillion dollars, all that makes 33% of the American GDP for the year 2020-2021, to which we must add a little over 3 trillion dollars for the year 2020. So do the math, we might not be very far from 10 trillion dollars of money injected by the end of 2021.
That's practically 50% of the American GDP. Compared to this effort, the New Deal... 1932, 1934, it's almost ridiculous. I don't even remember if the New Deal represented 10% of US GDP. We 're already more than three times the New Deal, and look, that's driving up stocks! We wonder why. What Jamie Damon isn't telling us, probably because he doesn't know, is what the inflation level will be in 2023.
So, if he says he's convinced the central bank will maintain attractive financing conditions, we can believe him. We can assume he's getting this information from reliable sources. The problem is that what matters to the market isn't the rate the Fed will keep well below the inflation rate, but the level of inflation anticipated by the market through 7, 10, or 30-year bonds.
So, if 30-year yields continue to climb, it might seriously curb real estate purchases because there are fewer and fewer Americans able to spend $330,000. The average price for a house is closer to one billion dollars, and even more for a house near a major metropolis like New York, Boston, San Francisco, Los Angeles, or even Atlanta.
So, rates that indicate a very insufficient number of properties should slow things down, except that we can calculate things differently. Currently, those invested in stocks and bonds will quickly realize that there's no more upside potential in bonds. They have enough cash to buy ten times all the available real estate, and we know that today only properties remain that are truly overpriced.
Too expensive when you've invested six times your initial investment in the SNPI (National Real Estate Investment Trust), saying it's almost a joke. In other words, inflation could also emerge through real estate, via rising rents and the energy transition. And Jamie Dimon completely failed to include the inflation variable in his marvelous calculations.
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