In a brief essay about Moral Decline: The Path to Currency Collapse, Jonathan Wellum, argues that “In the final analysis, it's just central banks printing money, reducing its value and causing inflation as they support dishonest governments that refuse to be fiscally responsible and continually run massive deficits. Such policies flow from the “elite’s” greed and their insatiable thirst for power, benefiting themselves at the expense of the middle class and working poor. Conclusion: A currency’s collapse is not a random event but the result of a society’s moral decline. From ancient Judah to the US, history shows that when ethics fail - through corruption, dishonesty, and short-term thinking - economic ruin follows. Currency reflects a culture’s values; when those values weaken, the economy falters. Only a morally strong society can maintain a stable currency and a thriving economy. The warning for Canada and the West is clear: ignore God’s truth at your own risk.”
About the money supply I would like to add that the economist at The Heritage Foundation, E. J. Antoni, recently wrote, “Another month, another record high for M2 - now over $22 trillion for first time - and it's growing faster than the pre-pandemic average; the Fed has completely botched the job, and this does not bode well for inflation in the months/years ahead...”
I am bringing up Antoni’s view because when I look at the price increases in the various asset markets and when I look at the incredible speculation that is going on in all assets markets, I am convinced that while interest rates have trended upward since 2020, liquidity has not tightened at all but as Antoni points out it has actually expanded, and M2 is at an all-time high.
If money was really tight, you would not see so many markets hitting all-time highs, credit spreads tight as they are and the volatility index this low. In addition, gold and silver would not be selling close to new highs and mining stocks would not be recovering.
Moving to another subject, what is striking is the superb performance over the last twelve months and since the beginning of the year of Hong Kong and Chinese stocks. From the late July/early August 2024 low, Hong Kong is up 50%, and year-to-date by 25%. The China Large-Cap ETF (FXI) is up over the last 12 months by 57% and since the beginning of the year by 27%.
I am bringing this up because for the last two years it was difficult to find anything positive to read about Hong Kong and China. I must point out that at major turning points (highs and lows), not all stocks top out or bottom out on the same day. Furthermore, the intensity with which the recovery takes place varies greatly. Hong Kong Land is up from the April 2024 low by 125% and year-to-date by 42%, whereas Great Eagle is up by 47% since August 2024 and January 2025 (the stock made a double low between August 2024 and January 2025.
Lastly, in an unfolding bull market in Asian stocks, strength in Hong Kong/China is spreading into Singapore and South East Asia.
The point I am trying to make is that while it is true that between 2010 and 2024 emerging markets grossly underperformed the US stock market, more recently some emerging markets have performed extremely well and outperformed the US. Furthermore, I urge my readers to look at markets like Malaysia, Indonesia, and especially Thailand that have not yet moved up in the current cycle. I upgraded Thailand because, even with the best effort, I really couldn’t find anything good about the economy and the stock market except that the market action had improved more recently.
As I explained before, I do not believe that monetary conditions have tightened at all. I am concerned about the high valuation of the US stock market, and the record margin debt, which if money was tight would not have expanded by leaps and bounds. According to Wolf Richter, “Margin debt blew out, spiking by 8.3% in May from April, and by 9.4% in June from May, to a record $1.01 trillion. In dollar-terms, June was the biggest month-to-month spike ever (+$87 billion).” [Richter talks of “loosey-goosey financial conditions”.]
I am glad that other financial observers have concluded that monetary conditions are “loose” because if monetary conditions are far from tight it would imply that the Fed would likely have to tighten monetary conditions in future. I would assume that if central banks would increase short-term interest rates it would come as a total surprise to investor who are heavily indebted and long assets such as homes and stocks. Furthermore, whereas large speculators are short Treasury futures, I believe that an impulsive upward move in interest rates would be perceived as a negative development for all financial assets.
Fortunately, there are still a few countries like Thailand that have a therapeutic effect on mind and body (see link below).
With kind regards
Yours sincerely
Marc Faber
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