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The Wall Of Money Part 1

Now that the stock market and Bitcoin have made new all-time highs, and Nvidia’s $3.01 trillion market cap exceeds Apple’s (a mere $3 trillion), Goldman Sachs comes out with a truly courageous call: a “Wall of Money” will continue to spur the stock market this summer and reignite a “party” for asset-holders.

The metaphor of a “wall of money” never made much sense to me. 

Is this a wall that must be climbed? That seems like an impossible task. Is the “wall of money” headed to lift asset prices higher? If so, the phrase “a wave of money” accords far better with other financial vernacular of “inflows” and “outflows” of “liquidity.” Why do people even call it that? 

The term may have originated in France. Google NGrams notes the first usages of “mur d’argent” meaning “wall of silver” or “wall of money” first in 1635 and then in the 1718-1720 period, during which time the French encountered a massive financial bubble surrounding the Mississippi Company, an entity whose value some estimate at its peak reached $6.5 trillion in today’s dollars. 

Or, in other words, an Apple, a Nvidia, and $500 billion in pocket money.

The first primary source using the phrase I managed to track down was from exactly 100 years ago. In 1924, French left-wing governments blamed the dramatic weakening of their currency, the franc, on the “mur d’argent,” who consisted of financial and banking interests that undermined the credit and currency of the French state by converting francs into gold/silver or other foreign currencies. 

This “wall of money” included wealthy French families selling domestic currencies, foreign speculators attacking the franc, as well as — notably — the Banque du France, which refused at the time to employ its considerable gold reserves to defend the currency. 

(Anger was also directed at visiting Americans, who, using their strong dollars to luxuriate in France at low cost — or worse, acquire French assets on the cheap — were called “destructive grasshoppers”).

Artwork from the period below suggests the “wall” in question might refer to a line of French savers queuing up outside a bank to sell their francs. I wonder if the “mur” might also suggest enclosure, encirclement, and a literal barrier of cash restricting political outcomes.

The negative connotation of the phrase lives on in France. 

But by the 1980s, outside of France, the phrase “wall of money” took on different meaning. Instead of referring to capital flooding out of an asset, the term began to refer to the capital that would flood in instead.

Gone were the individual French savers lining up outside their bank to convert their francs into dollars or gold. Now, it was large institutional pools of cash ready to deploy vast amounts of capital seeking a return.

Throughout the 1980s, the Japanese “wall of money” flooded into the U.S. real estate market, having run out domestic assets to buy (with the Nikkei trading at ~60 times earnings, and the 1.15 square kilometer grounds of the Tokyo Imperial Palace estimated to be greater at peak than the value of all real estate in California).

By the turn of the century, a “wall of money” had flooded into European venture capital. 

The adoption of the euro sparked a lending boom to countries like Spain, Greece, and Ireland, fueling real estate bubbles. You’ll never guess what the Irish called this influx of new capital.

In 2005, soon-to-be Fed Chairman Ben Bernanke began attributing to a “global savings glut” the surprisingly stubbornly low yields on long-duration U.S. Treasury bonds. By 2007, European economists were attempting to rationalize this “wall of money” as a search for yield justified by the deregulatory derisking of bank assets.

At a 2010 Malaysian-Chinese forum, there was a panel about the vast savings of the Chinese private sector that was literally called “the wall of money.”

By 2012, the governor of the Bank of Japan said it could “put up a wall of money almost instantaneously.”

The new wall of money was built by the vast fiscal and monetary stimulus of 2020 and 2021. 

The substantial interest rate hikes and quantitative tightening by the Federal Reserve over the past two years appeared to put a dent in this mountain of cash as risk assets suffered greatly in 2022, but they have rebounded and now stand at all time highs. As do the cash in money market funds.

The wall keeps getting higher. Goldman is late to the party, but might not be wrong.

— Jack Farley

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The Fed Wants To Ease, Will The Everything Rally Continue?

This episode Warren Pies Founder of 3Fourteen Research joins the show to discuss the current state of markets with oil trending lower, markets continuing to rally & a pivotal FOMC next week.

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