Two charts crossed my desk this month. One shows the price-to-sales ratio of the S&P 500 at 3.59, the highest reading in the eighty years of data behind it. The other shows M2 money supply at $23.1 trillion, up nearly five times since 2000. Most people look at these charts and feel dread. I look at them and see a ledger. Ledgers can be read. Dread cannot.

Sales are the honest line on the income statement. Earnings can be engineered. Revenue grows with the economy itself. So when the market trades at 3.59 times sales against a postwar norm near one, the ratio tells you something specific: investors are paying forward. They have consumed future returns and booked them as present wealth. The dot-com peak was 2.3. That episode cost the index a decade of catch up and consolidation.

The money chart explains how the $18 trillion created since 2000 did not circulate. Velocity collapsed. And the new dollars pooled in financial claims instead of flowing through wages and shopping carts. One observation says those closest to the spigot got the money first and bid up assets (stocks & real estate). Sales live downstream, in the spending economy, and touched the dollars last. The wedge between the two is the chart. This is the Cantillon effect drawn in a single line.

The Tally

 

Now run the full accounting since 2008, because the stock market is only one entry.

Federal debt stood near $10 trillion when Lehman fell. It stands at $39 trillion today. Call it $29 trillion of cumulative deficits in eighteen years, with the CBO projecting $23 trillion more over the next decade. There was no war. There was no depression. This is what the machine produces in ordinary operation.

The Fed’s balance sheet was $900 billion in 2007. It touched $9 trillion. The expansion was sold as temporary and never fully reversed. Each new facility since — the repo backstops, the bank term funding after Silicon Valley Bank — followed the same design. Private balance sheets take the risk and keep the profit. The public balance sheet absorbs the loss. (You can observe today that the Fed’s balance sheet has resumed an upward shift.)

Below the federal line sit $4 trillion of state and local debt, plus pension promises of similar size that appear on no balance sheet anywhere. Households carry $18.8 trillion — $13.2 trillion of mortgages, $1.7 trillion of auto loans, $1.25 trillion of credit cards, and $1.87 trillion of student debt counting federal and private together. The student loan deserves its own sentence, because it is the only major debt in America secured by a depreciating asset that cannot be sold, repossessed, or discharged. The collateral is the degree, and the market has repriced the degree. More than 10% of balances run ninety days late now that the pandemic pause has ended, the defaults cluster among borrowers who paid for the credential and never received it, and most Americans now tell pollsters that college matters less for earning a living than it once did. We wrote $1.9 trillion of mortgages against a house whose value is falling and called it an investment in human capital. Private credit grew five times since 2009 to roughly $2 trillion, and its entire premise is migration: credit that left the banking system so it would not be marked, measured, or regulated like credit.

When Meta borrows $29 billion for a data center through structures built not to count as debt, the structure is the message. And now the postscript: Meta is reportedly preparing to rent out the capacity it built, because it holds more compute than it can digest. Follow the sequence. Borrow off the balance sheet, build past the point of absorption, then recirculate the surplus as someone else’s input — sell the excess to the same industry that is overbuilding beside you. The gimmick has begun to feed on itself.

Then the entry no economist counts. Healthcare runs near $5 trillion a year, most of it treating conditions the food system manufactures. Processed calories were booked as GDP at the moment of sale. The cost was deferred into bodies. It compounds biologically, which is worse than compounding financially, because you cannot refinance a pancreas. I have called this the metabolic donkey since 2013. The donkey now carries the whole ledger.

You can see this liability walking through the labor market. Put two maps side by side. In 1990 the top employer in most states was manufacturing — a wall of blue from Washington to Maine. By 2024 the map has turned purple. Health care is now the largest employer in the majority of American states. We tell ourselves this is the service economy maturing. It is not. It is the deferred cost coming due, converted into payroll. Millions of jobs now exist to manage the damage that other jobs were paid to create. The economy that once employed people to make things now employs people to treat the people who ate what replaced the things.

One more reading from the same patient. Labor’s share of output fell to 53.2 percent this year, the lowest since the government began counting in 1947. Workers produced the output and received the smallest slice of it on record. Hold that number against the price-to-sales chart and the two resolve into one picture, because they are mirror images. Every point of income that leaves the wage line lands on the margin line, and the market capitalizes margins at thirty times. The index at 3.59 times sales is, in part, the present value of labor’s lost share — the wedge between what the economy pays its people and what it pays its owners, marked to market daily and called a bull run.

I have written before about the three disseverances of our age: calories severed from nutrition, facts severed from news, and wealth creation severed from employment. The first swells the body while starving it. The second swells the feed while starving the mind. The labor share chart is the third, drawn in a single falling line — wealth created without the workers who once shared in it, eighty years of decline, with the machine that prices equity treating every leg down as earnings quality.

Obesity is a form of starvation. This is not a metaphor reaching for effect. It is physiology. Clinicians find obese patients deficient in iron, vitamin D, magnesium, B12 — a condition the literature calls hidden hunger, malnutrition at four thousand calories a day. The mechanism is simple and merciless. Appetite hunts for nutrients, protein above all, and when food is diluted with cheap refined carbohydrate and industrial fat, the body keeps eating in search of what the food no longer contains. The satiety signal is honest. The food is not. The body starves for information as much as for nourishment, and it responds the only way it knows how: it asks for more. And then the more sinister side-effect of metabolic disease: emotional instability and cognitive impairment. Yet school lunches remain toxic.

Grasp that and you grasp the economy whole. GDP swells the way a body swells — abundant in volume, starved of the thing volume was supposed to carry. The stock market gorged on liquidity is not nourished, and it behaves the way the body behaves: it keeps asking for more, because the liquidity carries no yield the way the calories carry no nutrition. The health care employment map is not prosperity. All of it is the same condition at different scales — consumption disconnected from what consumption is for, and a hunger that grows because it is fed.

 

The pattern repeats across every domain: privatize the gain, socialize the cost, defer the reckoning to a balance sheet nobody audits. The distortion since 2008 is not a number. It is a method.

Risk in a Distorted Room

Here is where I part company with the doom writers. A distorted price is still a price. It carries information. It just carries different information than an honest one.

In an honest market, price tells you what a thing is worth. In this market, price tells you where the liquidity went. Those are different questions with different answers, and an investor who confuses them will be punished. The index at 3.59 times sales is not telling you American business became three times better. It is telling you that $18 trillion of new money needed somewhere to live and chose equity (and houses). That is not a reason to own the index. It is a reason to understand why everyone else does.

The practical consequence is that risk has moved. It no longer lives where the textbooks put it. The “safe” sixty-forty portfolio now holds the two assets most exposed to the distortion itself: long-duration claims priced off a suppressed rate and an index priced off a swollen money supply. Meanwhile the things that look risky — small companies with real revenue trading below the market multiple, income securities at discounts to net asset value, hard assets nobody securitized — carry less embedded distortion because less liquidity found them. The pools that filled last drain last.

This is why I fish where I fish. A biotech with a binary catalyst is honest risk: the drug works or it does not, and no central bank votes on the outcome. A closed-end fund at a fifteen percent discount to assets is honest risk: the gap closes or it does not, and the math does not care about the Fed’s balance sheet. These positions can lose money. They will lose money, some of them. But the risk is legible. In a distorted environment, legible risk is the scarcest asset there is. I will take a known coin flip over an unknowable one at any price.

The rule I hold: size positions for the environment, not the thesis. The thesis can be right and the environment can still take you out. When the whole room is levered, the exit is narrower than it looks, and the wise move is to carry enough liquidity that you can be a buyer on the day everyone else must sell. Liquidity in this environment is not dead money. It is an option on other people’s margin calls.

The Cleanest Dirty Shirt

The last point, and the one that keeps me from the bunker: none of this happens in a vacuum. The dollar does not need to be honest. It needs to be less of a gimmick than the alternatives, and the competition is not close.

Europe runs the same deficits with worse demographics and no energy. Japan monetized its debt decades ago and now owns most of it through its own central bank. China buried its distortions in real estate and provincial balance sheets that make our municipal problems look Presbyterian. The global system is a laundry line of dirty shirts, and capital does not choose the clean one. There is no clean one. Capital chooses the least dirty, and it has chosen ours for a century because we have the deepest markets, the rule of law on most days, the reserve currency, and now the AI capital stack too.

This is America’s actual position: not solvent, but relatively solvent. Not honest, but auditable. Not undistorted, but distorted in daylight, with a Fed that publishes its balance sheet weekly and a Treasury that reports its debt daily. The rest of the world hides its numbers. We publish ours and the world buys them anyway. That is a franchise, and franchises degrade slowly, and slowly is enough time to position well.

So the posture is neither bull nor bear. It is sobriety inside a party. The distortion is real, the tally is enormous, and the method — spend the future, book the present — governs everything from the deficit to the dinner plate. But distortion creates dislocation, and dislocation is where returns live for anyone willing to hold legible risk while the crowd holds the index. The donkey carries the load either way. The only question is whether you ride it or get ridden.

The best idea I’ve got is what the USA eventually resorts to: money printing. Both political parties do it. I’d say politics breaks before the monetary system.