Bubble #3: The Stock Market

GoldmanSachs3My first job in California when I was 19 was at a Pic N’ Save making $4.25 an hour stocking shelves. That was during the 1991 recession. I barely had enough time to work my way up to one of the Big 5 Accounting firms before the Dot.com bubble struck. Having barely survived that after being laid off as my entire department was wiped out, I clawed my way back up just in time to sidestep the Housing Bubble implosion. What do all three of these negative economic events have in common? Our Government created them. With friends like our Government, who needs enemies?

Since I was a kid, I have been working and walking a landmine of Government’s nonstop, 24/7 efforts to destroy our economy and take more control over us and our money. I often wonder if I would have been more or less prosperous had the Government stayed out of the economy, and the past 22 years had been nothing more than pure economic growth and incredible opportunity for everyone. I would like to think that Government’s obstacles to my growth incentivized me to overcome them and do better than I would have without them, but in the end, I think that is just wishful thinking. I would most likely being doing much better now without Government’s interference and any success I have had to date has been despite my Government’s efforts to the contrary.

In thinking back on our Government’s destructive pattern I noted the shortsightedness of many that has led them to believe that recent stock market performances are somehow  a sign of a recovery in the economy. Of course, both the dot.com and housing bubble were also promoted at their time as indicators of a recovery, of a new economic model, of endless prosperity. Right up until the day before they crashed. And here we are again, thinking yet again, that this time it is different. Again. The current bubble perpetrated by our Government may one day be called the Dow Bubble, but exactly like those bubbles preceding it, the Dow Bubble too will implode.

In wanting to provide my readers with more than just my opinion, or the opinion of some news article, I am offering the following quote that was provided to me this morning at my request from a personal and trustworthy economic and financial adviser who manages millions of dollars in other people’s retirement funds. He explains why the Dow Bubble is a fiction, written by The Fed and Obama, and why it too will soon find a pin and pop.

The Fed prints money to buys bonds (Treasury Bonds & Mortgage Bonds, Student Loans, etc…), the sellers of these bonds take the proceeds and buy other bonds and stocks.  A slow rotation out of bonds, which have no yield,  and into equities (stocks in the stock market) which have some yield, lifts the stock market. So we have a Fed induced rally based on ZIRP (Zero Interest Rate Policy) and QE (Quantitative Easing, i.e. money printing) of $85B+ a month.  Add to that huge government spending (a $4 trillion dollar annual spend, plus states, counties and cities spending totals) even though it is all debt spending adding to the debt load it does drive corporate earnings in the short run, which also drives stock prices.  Big business have fared better than small as Big business is a larger recipient of the government spending. Big businesses just like the ones that make up the stock market.

Stocks are an inflation discounting asset and as money supply grows stock prices can be a recipient of that expansion.  This is not fundamental based growth, it is inflationary growth.  The Fed/Government wants to inflate asset prices by buying assets or printing money that flows to assets. [AWC Note: In other words, this is not growth based on reasons that you and I would consider as positive growth for companies that we would then buy stocks in like actually performing better, providing new products and services, expanding, etc.. this is growth based on money printing. False growth. A mirage.]

We also see foreign investment that comes in and buys huge chunks of hard assets (Central banks buying gold), Sovereign wealth funds buying oil companies, pipelines at a billion dollars a pop etc….  so the assets and the income go to foreigners as well.

We are growing the economy by inflating the value, and cutting off pieces of the cow to the highest bidders, as opposed to growing a productive economy and selling more milk from a larger, healthier herd.

In short, Obama’s Government and The Fed are creating an inflationary induced bubble in the stock market to provide the illusion of real growth while billions of dollars of assets in the U.S., like land, buildings, corporations and infrastructure are being bought up by foreign investment funds that are using our own money by taking out no-interest loans to do it.

This makes complete sense. Borrow $1B from the U.S. at 0% interest, then buy the Empire State Building with it which floods the U.S. economy with another $1B of money printed out of thin air, thus driving up inflation. The loan is then paid back with no interest and you don’t care what happens to the value of the U.S. dollar because you own The Empire State Building which has an intrinsic value irrespective of currency and it was a no interest loan to boot. Meanwhile, all of the revenue generated by The Empire State Building leaves the country to be enjoyed by the new foreign buyers. Now repeat this process daily.

Meanwhile retirees and savers are punished with no rates of return, home buyers are strapped with massive loans on overpriced assets, students take out oppressive debt to secure worthless degrees in an economy and job market that is actually shrinking, not expanding, and taxes have gone up on everyone with more on the way. All the while Obama and Bernanke and MSNBC continue to tell us the economy is great, that everything is fine, that there’s nothing to see here, just please carry on.

The truth is that the Government was unable to wipe us out completely the first two times, so it’s come back to finish the job.

But remember, Americans voted and asked for this. We could have stopped this at any time, but we did not. And we continue to do nothing.

Categories: Corporate Fascism, Cronycapitalism, Economy, Federal Reserve, Government Tyranny, Inflation, National Debt, Personal Economics, Socialism, Taxes

Tags: , , , ,

1 reply

  1. As I slept in today, had some bacon with green waffles (St. Patrick’s Day), fresh fruit and a cup of coffee then peer outside to my zen-like backyard with a pool. It’s not that I don’t appreciate the AWC blog, it’s just I should have read it at the end of my day not the beginning. But AWC is right, it seems to me all the fish in the ocean are just swimming around without the fear of sharks or whales. But for the AWC fish, these fish are on the outside of the pool trying to get the Amercian people to become more aware that we are caught in a giant pool and not continue to become bait for the whale and sharks. We all should stand up be free to overcome the big fish and swim where we want before we end up rolled in seaweed and rice; or if we were just a bottom dweller, it would be bait.

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