The S&P 500 has risen to a new high and is close to its record level. Complacency seems to be taking hold of market participants because the latest leg up has been driven entirely by multiple expansion.

According to Bloomberg, the Price to Earnings ratio of the S&P 500 has erupted back to 19.2x, almost a 10% increase in valuation with no discernible improvement in earnings or margins. The latest round of revisions shows consensus estimating a -0.28% growth in earnings for this year.

Consumer confidence is back at 2022 lows and the economic surprise index is also weakening. What are investors betting on? Good old quantitative easing to return.

Most politicians have used the “Ukraine invasion card” to justify the massive inflationary burst in 2021-2023.

It does not matter if inflation was already elevated prior to the war. Supply chain disruptions, demand recovery, wage growth… Many excuses were used to justify inflation, except the only one that can make aggregate prices rise in unison, which is the creation of more units of currency well above demand.

Inflationists will blame inflation on anything and everything except the only thing that makes all prices, which are measured in monetary units, rise at the same: Money supply growth rising faster than real economic output.

Global debt levels soared by $8.3 trillion in the first quarter of 2023, climbing to $305 trillion, nearly the record high set in the first quarter of 2022, according to the Institute of International Finance. This means almost 335% of GDP.

Rising debt is a burden on growth, and soaring public debt means higher taxes, weaker productivity and declining real wages as governments push inflationary policies to try to dissolve part of their enormous indebtedness.

Since 1960, Congress has raised the debt ceiling 78 times, according to Bloomberg. The process of increasing the debt limit has become so regular that markets barely worry about it. Furthermore, as the 2011 debt ceiling crisis showed, the impact on asset prices happened mostly in emerging economies. In 2011, Turkish and Indian debt were the most negatively impacted, while Treasuries rose.

Politicians believe that raising the debt ceiling is a social policy and that debt does not matter. Until it does. United States debt to GDP is now 123.4% and the risk of losing confidence on U.S. treasuries as the lowest risk asset is exceedingly high.