Saturday, April 17, 2021

Convexity Maven: "The Marshmallow Test”

 From Harley Bassman, The Convexity Maven, at Simplify Asset Management, April 13:

Fifty years ago,it was demonstrated that the ability to delay gratification was an attribute correlated with life successes –at least as measured by one’s eventual SAT score, Body Mass Index (BMI) and educational attainment. (Spousal selection was not included, which I would note as my greatest achievement.)

The famous Marshmallow Test offered five-year-old children the option of a single marshmallow immediately, or two marshmallows fifteen minutes hence. While unclear if this was biased by one’s environment (the initial group was selected from the Stanford University pre-school), the evidence did support the ecclesiastic notion (James 5:7 among others) that “patience is a virtue”.

Let’s dispense with the Modern Monetary Theory (MMT) nonsense that the massive expansion of Central Bank balance sheets (money printing) has not created inflation. Of course there is inflation;just not sourced from the intended location of middle-class wages and captured by the Consumer Price Index (CPI).

With justification, our politics have been roiled by notion that Government actions since the Great Financial Crisis (GFC) have mostly benefited the Top 1%, who owe their expanding wealth to the price of assets (both financial and real).Thus, the familiar relationship between the -fulvousline- growth of the FEDs (Federal Reserve) balance sheet and the level of the -calypso line-S&P 500....

....Since money is fungible and respects few national boundaries, perhaps it is better to compare thebalance sheets of the -harbourline-G-3 (US, Europe, Japan) Central Bank balance sheets with the -santaline-S&P 500 (SPX), which offers an even tighter correlation....

....MUCH MORE (9 page PDF)