“Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.”– Irving Fisher, Ph.D. in economics, Oct. 17, 1929
See that quote? PH.D in economics swept into the hysteria (normalcy bias) that somehow the stock market would just keep going up forever…until BLACK TUESDAY, October 29, just 12 days later, the stock market began it’s epic collapse.
The stock market has NEVER been an accurate indicator of the country’s economic well being and market forces because sentiment and human behavior are often what drive it too high and consequently, too low. Add in a nation’s central bank, aka the Federal Reserve that has left long ago it’s purpose of securing ‘sound money’ and now IS the quintessential ‘market manipulator’. What? Yes!
Since the confiscation of the public’s gold by Roosevelt in 1933, Johnson removing the silver from our coinage in 1965 and the final nail in
the coffin of having a sound American Dollar, backed by something ‘real and tangible’ was Nixon taking us off the ‘Gold Standard’ in 1971.
That meant that Federal spending was no longer limited to the amount of real wealth of the country, as ‘stored’ by the amount of gold we had. Gold is a store of ‘real wealth’. The paper dollar is a fiat currency that was only, what I like to say: is a coupon or claim on real wealth. When you take away the ‘collateral’ to back the dollar, what remains is a green piece of paper.
Think about it American. Your government has been printing dollars in the trillions (which you cannot fathom, for if you did, millions would be marching on Washington D.C. in flat out revolt!) especially since 2008 to bail out this failing monetary system in the name of ‘stimulus’.
How does this tie into the stock market, the real estate market, bitcoin, and the once ‘safe haven’ of ‘safe havens’: government bonds?
When the central banks print money out of thin air (fiat currency) it not only robs the buying power of the existing dollars that are in the system, owned by you (that’s why you dollar buys less and less each year..but it wasn’t always that way…early in the country history and for over a century, a dollar saved was indeed a dollar earned and lost very little if any buying power…image that for a moment, please), it not only reduces the value but creates ‘leveraging’ bubbles. What do I mean by that? When I can go out and borrow $100,000 at say 3% it creates an incentive to borrow – I mean that’s some cheap ass interest rate! We can buy another home and rent it out, we can buy a new car, do home improvements, gamble, buy stocks, boats, toys, tv’s anything! That creates an ‘artificial demand’ that would not normally be there if you actually had to work, produce and save that money, otherwise known as ‘capital’. This creates big ass bubbles like you saw in the housing market prior to 2008 and in the stock market. Consequently, those who do work their butts off, are highly productive (meaning they ‘create a product or service from nothing and bring to market) and save (meaning capital) are actually PUNISHED! Punished you say? Yes, how much can that $100,000 garner in interest if I actually worked hard and saved it over a period of years? Well after the ‘bailouts’ (printing fiat currency out of thin air and GIVING it to the banks and government by buying crap loans and assets worth nothing) you could get maybe .03%. Even now…a whopping say .07 1%? That is punishing productively and rewarding risky speculation.
The health of a country’s economy is not measured by cheap hot money loaned out to ‘push asset prices higher’ by ‘creating artificial demand’ (remember ‘supply and demand’ – if demand outpaces supply of a scarce resource, the price goes higher) but by how productive a country is in utilizing its capital with scarce resources.
Your stock market is in a huge artificial bubble.
Companies are borrowing (called margin) money cheaply (because of artificially low interest rates) say at 3.5% and buying their own stock back creating an artificial rise in their stock price and then getting a dividend or return of 10 or even 15% (less the 3.5% ‘cost’ of borrowing the money). Stock buybacks on margin are over 500 billion dollars currently (and starting to drop). The stock isn’t going higher because the company has a great ‘price to earnings’ P/E ratio, or being more productive or selling at higher margins, or paying off debt, in other words ‘being a great company that has earned that rise in stock price. Now add in the masses, just like the run up prior to 2008…”you have to get in!! look how much money is being made!!” so near at all the way at the top the mind numb masses, fueled by greed and emotion, not wanting to get left behind bought houses, WAY OVER PRICED HOUSES, at little to no money down, with ridicules credit hazards and very little forethought of: ‘what if the interest rates rise? or what if my income drops..or BOTH!’.
This experiment of having a debt based monetary system, backed by nothing but the promise to pay (you basically trading your time for paper, which will be taxed to pay the u.s. debts, which can never be paid back in full, yet that is another topic of dellusionary demise) is not even 50 years old and has failed several times, the biggest in 2008-09. That was the big wake up call to allow those who thought that they could inflate (print borrow and spend) their ways to wealth to fall on their faces and restart with sound monetary policy once again. But that didn’t happen. The central government and central banks tripled down and put the printing presses into overdrive printing TRILLIONS UPON TRILLIONS buying up crappy investments, stocks, mortgages, debt that should have failed. Not to mention the central government not only continued to spend money they did not have..They tripled the amount of printed borrowed and spent money on your behalf and NOTHING HAS CHANGED! YES CURRENTLY UNDER PRESIDENT TRUMP YOU HAVE AS BIG OR BIGGER BORROWING THAN PRESIDENT OBAMA, WHICH WAS 3 TIMES THE AMOUNT OF PRESIDENT BUSH, for whom was the most profligate spending presidency to date. Get it? Wake up!
Now those bubbles are 10 times the size they were prior to the 2008 -09 crashes in the over inflated housing and stock markets. Candidate Trump prior to becoming president, he himself called them bubbles when debating the witch from hell (click pic for video from bloomberg politics):
Now, the biggest bubble there is now IS the dollar, and every fiat currency around the globe.
What bank will bail out the United States for it’s reckless currency debasing and at what cost? All nations by the way have been doing this yet the U.S. dollar has a special ‘Reserve Currency’ and ‘Petro Dollar’ status that allows us, our Central Bank to ‘SET’ an artificial interest rate in lieu of having to ‘float’ it against competing currencies. But that is now eroding quicking and will be lost in the coming crash. Did I say crash? Okay sweetheart, how bout ‘correction’. Are you ready for a 40,50, 70% correction in the stock market, housing market and bond (which is just government debt) markets?
See and act accordingly – and above all “don’t be a drone!”