Everything Is Nonsense

 

If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn’t. And contrary wise, what is, it wouldn’t be. And what it wouldn’t be, it would. You see?

– Alice’s Adventures in Wonderland

 

Mad_Hatter_0011A public service message from the Mad Hatter – bad news is bad. Ominous, even. Hat help us all!

Illustration credit: Bob Kane

 

BALTIMORE – The Dow rose the fifth week in a row last week, ending with a 120-point jump on Friday. This has put the index firmly in the black for 2016. Well, this is a showdown, isn’t it?

Either us… or the great mass of investors – one of us is wrong. In the weeks to come, we’ll find out who (notice to new readers: It could go either way). But wait a minute…

Our old friend Rob Marstrand, who writes at Of Wealth.com, explains why the great mass of investors has little to do with it. Apparently, corporations have nothing better to do with their money than buy their own shares.

 

“There’s a dirty little secret in the U.S. stock market. Corporate America is paying out more cash to shareholders than it earns in profits. This means there’s nothing left to invest in business growth. It also means debt levels are going up, increasing risk…

Analysis by Bloomberg shows that those companies are on track to spend $590 billion a year on buybacks in 2016, at the first-quarter rate. That would be even more than the last point of peak buybacks – at the previous market top in 2007, just before the last crash. Put simply, companies are spending record amounts of cash on buybacks at precisely the wrong time (as usual): when stocks are extremely expensive.”

 

1-Buybacks vs. fund flowsCorporate buybacks vs. other fund flows – corporations are the market’s main remaining prop, by buying back their own stock on credit at insane prices.  They are doing this in order to flatter earnings per share amid a complete lack of top-line growth and declining profits. What’s the point? The stock options managers pay themselves, which are only worth something if stock prices hold up. If that requires destroying balance sheets and shareholder value, so be it – click to enlarge.

 

It’s an Alice in Wonderland world. Everything is nonsense. Stocks are going up. That should mean things are looking up for business. Which should mean that companies have plenty of worthwhile new capital investments to make – new machinery, new factories, new products, and more distribution.

And if things are looking up for business, it should mean things are looking up for their employees.   More jobs. Higher wages. And since stock prices are not far from record highs – after clawing their way back up the mountain over the last five weeks – it must mean that things are looking up all over, right? Rats!

 

We’re All Mad Here…

Time is the ultimate unyielding human resource. And the ultimate measure of how wealthy a society is how much you can get paid per hour. Cometh another depressing report for millennials from conservative website Red Alert Politics:

 

“Compared to the national average, you are poorer than most people of your age in the past. The youngest millennials are the worst off. In 1979, the average American 20 to 24 years old had average incomes 10.1% below the national average. Today, it’s 31.5% below the average.”

 

2-real median 20-24The chart shows the income situation of the 20-24 and 25-29 age brackets relative to the national average across the world as of 2013. Although slightly dated, we assure you the situation hasn’t gotten any better since then. It is by far worst in the US, which partly explains why Mr. Sanders is so appealing to youngsters – click to enlarge.

 

Not that we’re going to whine on behalf of the young. They’re doing their own whining at the ballot box. The youngest voters are going for the oldest candidate: democratic socialist Bernie Sanders. But what entertains us today is the nonsense of the entire system.

We’re all mad here,” says Wonderland’s Cheshire Cat… perhaps anticipating Janet Yellen’s Fed. Actually, the whole system is not just mad. It is also corrupt and phony.

 

A Phony System

It begins with phony money. Dollars are supposed to represent wealth. How do you get wealth? By working, investing, and saving, right? But after 1971 – when President Nixon ended the direct convertibility of dollars to gold – the Fed created new dollars with no wealth backing them. Post-1971 dollars are IOUs from Uncle Sam, nothing more. The Fed carries them on its books as a liability.

Then there is the problem of phony savings. In a healthy economy, you earn money, and you save part of it. This can be lent out, as credit, to fund new projects and earn interest. Savings – and credit – are limited. They are based on real surplus wealth.

But in today’s mad system, central banks and banks create credit out of thin air… using nothing but keystrokes on a computer. No savings are needed. Savers might as well not bother. Thanks to the Fed’s regime of ultra-low interest rates, over the past 10 years, Bloomberg estimates that about $8 trillion has been confiscated from savers – money they should have earned in interest.

 

3-debt, GDP and FF ratePhony is as phony does – total credit market debt, GDP and the FF rate. Before the economy can recover, sanity needs to be recovered. The process is likely to be nasty – click to enlarge.

 

On top of this, the government has a phony fiscal policy. It borrows phony money from banks in return for Treasury bonds. Under QE, the Fed then buys these bonds from the banks. The Treasury then pays the Fed interest on these bonds… the Fed then gives this interest back to the Treasury.

Neat, huh? It’s free money for the feds. They borrow nothing for nothing… and everyone pretends it’s real.

This is all made possible by phony monetary policy. The Fed sets interest rates at the lowest levels in history. So borrowers – especially the largest borrower in history, the U.S. government – can get funds cheaply.   This is done to strengthen the economy, but the economy grows weaker under the burden of so much more debt.

 

Corrupt and Fraudulent

This all leads to a phony stock market, in which corporate bosses use the cheap money to loot their own businesses. Companies borrow heavily to buy back their own shares and cancel them. This increases the earnings per share of the outstanding shares, boosting their value.

Top execs then collect fat bonuses based on rising share prices. Shareholders get a temporary boost as their stocks go up, but their businesses are weakened by the additional debt.

 

4-SPX long termThe growth of phantom wealth in the great credit bubble – click to enlarge.

 

And the entire system creates phony wealth. This is not capitalism. It’s phony, crony capitalism. Its phony money leads to phony investments – short-term speculations… scams… and rent seeking. These do not build real wealth; they extract real wealth from the rest of the economy and shift it to the well-connected sectors.

Here’s how it works in housing, for example. The banks get the phony money and lend it to house buyers. They collect interest on “money” that cost them next to nothing. Naturally, they lend more and more… in order to maximize their own income. This leads to rising house prices… and eventually, a bust, when too many people own too much money on houses they can’t really afford.

This is what happened in 2007. Home buyers couldn’t make their payments. Home prices fell. Families lost their homes. And then, even the banks were in trouble. So, the Fed came and bailed out the banks, so the extraction could continue.

And today, almost every one of America’s taxpayers continues to make payments to the credit industry – for student loans, housing loans, auto loans, credit cards – transferring more and more real wealth from the people who earned it to the privileged elite.

But it is not just Wall Street that comes out ahead. The entire Deep State complex is at the heart of the nonsensical, corrupt, and fraudulent system… Expecting the Mad Hatter to protect you? Or the Cheshire Cat?

Good luck with that!

 

Charts by: Bloomberg, Euromonitor, St. Louis Federal Reserve Research, StockCharts

 

Chart and image captions by PT

 

The above article originally appeared as “Why the Rally in Stocks Can’t Be Trusted” at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 

 
 

Emigrate While You Can... Learn More

 
 

 

Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

2 Responses to “Alice in Wonderland”

  • Kafka:

    Bill

    At its core the Fed and all the cronies are committing treason. The murder of the nation through stealth. They have sown the wind, and there is no place on this earth they can hide, when they reap the whirlwind.

    The panic by the Deep State created by a plain-speaking businessman is nothing now that the people are finding their voice.

    Is your life worth $1 billion ? How about one more breath ?

  • No6:

    Voting for politicians is a great way to change this corruption! Not!

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • safe spaceReality is a Formidable Enemy
      Political Correctness Comedy We have recently come across a video that is simply too funny not be shared. It also happens to dovetail nicely with our friend Claudio's recent essay on political correctness and cultural Marxism. Since this is generally a rather depressing topic, we have concluded that having a good laugh at it might not be the worst idea.   How to most effectively create a “safe space” on campus Cartoon by Nate Beeler   It is especially funny (or...
  • Gold bars are displayed at a gold jewellery shop in the northern Indian city of Chandigarh May 8, 2012. Gold imports by India, the world's biggest buyer of bullion, could rise on pent-up demand from jewellers after the federal government decided to scrap an excise duty on jewellery it imposed in March, the head of a trade body said on Monday. REUTERS/Ajay Verma (INDIA - Tags: BUSINESS COMMODITIES)Fresh Mainstream Nonsense on Gold Demand
      They Will Never Get It... We and many others have made a valiant effort over the years to explain what actually moves the gold market (as examples see e.g. our  article “Misconceptions About Gold”, or Robert Blumen's excellent essay “Misunderstanding Gold Demand”).  Sometimes it is a bit frustrating when we realize it has probably all been for naught.   Gold wants to know what it has done now... Photo credit: Ajay Verma / Reuters   This was brought home to...
  • fir wateringDrowning the Fir
      Presidential Duties Our editor recently stumbled upon an image in one of the more obscure corners of the intertubes which we felt we had to share with our readers. It provides us with a nice metaphor for the meaningfulness of government activity. First, here is a look at the picture – just quietly contemplate it for while and let it work its magic on you:   Yes, these two gentlemen are actually watering a tree in the middle of a downpour... Photo via...
  • Hollande 2The Wonder Years Are Over
      Everybody Is Unhappy PARIS – “France?” We were in a cab on the way from Charles de Gaulle Airport yesterday. We had innocently asked our cab driver how things were going in the country. He had some thoughts...   French president Francois Hollande: against all odds, he managed to attain the most powerful position in French society. And yet, even he is unhappy. Photo credit: Patrick Kovarik / AFP   “France is a mess. We have 5 million people unemployed. And...
  • mossack fonsecaGold – The Commitments of Traders
      Commercial and Non-Commercial Market Participants The commitments of traders in gold futures are beginning to look a bit concerning these days – we will explain further below why this is so. Some readers may well be wondering why an explanation is even needed. Isn't it obvious? Superficially, it sure looks that way.     As the following chart of the net position of commercial hedgers illustrates, their position is currently at quite an extended...
  • 5-SPX vs. tax receipts from 2007Corporate Tax Receipts Reflect Economic Slowdown
      Tax Receipts vs. the Stock Market Following the US Treasury's update of April tax receipts, our friend Mac mailed us a few charts showing the trend in corporate tax payments. Not surprisingly, corporate tax payments and refunds mirror the many signs of a slowing economy that have recently emerged. An overview in chart form follows below. First up, corporate tax receipts in absolute figures.   Corporate tax receipts in absolute dollars and cents – this is quite astonishing...
  • picture-social-contract-not-foundHeretical Thoughts and Doing the Unthinkable
      Heresy! NORMANDY, France – The Dow rose 222 points on Tuesday – or just over 1%. But we agree with hedge-fund manager Stanley Druckenmiller: This is not a good time to be a U.S. stock market bull.   Legendary former hedge fund manager Stanley Druckenmiller at the Ira Sohn conference – not an optimist at present, to put it mildly. Photo credit: David A. Grogan / CNBC   Speaking at an investment conference in New York last week, George Soros’ former partner...
  • ClintotrumpStaying Home on Election Day
      Pretenses and Conceits The markets are eerily quiet… like an angry man with something on his mind and a shotgun in his hand. We will leave them to brood… and return to the spectacle of the U.S. presidential primaries. On display are all the pretenses, conceits, and absurdities of modern government. And now, the race narrows to the two most widely distrusted and loathed candidates.   US election circus: Deep State Rep vs. Rage Channeller   The first, a loose...
  • time100-grid-covers-whiteThe World's 100 Most Influential Hacks, Yahoos and Monkey Shiners
      Hacks and Has-Beens NORMANDY, France – What has happened to TIME magazine? Henry Luce, who started TIME – the first weekly news magazine in the U.S. – would be appalled to see what it has become.   Time cover featuring the sunburned mummy heading the globalist IMF bureaucracy (which inter alia advocates that governments should confiscate a portion of the wealth of their citizens overnight, even while its own employees don't have to pay a single cent in taxes). Once you...
  • trumparyA Trump Landslide in November?
      Objective Reality After spending three weeks with objective truth at the ranch, we are now forced to return to the world of myths, delusions, and claptrap. Yes, we are in Buenos Aires looking at a TV! And there they are... talking about the world of politics, money, culture... the world of Facebook and CNBC... of Trump and Clinton... of ZIRP and NIRP... and of Game of Thrones.   The royal seating accommodation fought over in “Game of Thrones”. It looks decidedly...
  • Bank of Japan (BOJ) Governor Haruhiko Kuroda attends a news conference at the BOJ headquarters in Tokyo, Japan, December 18, 2015.  REUTERS/Toru HanaiKuroda-San in the Mouth of Madness
      Deluded Central Planners Zerohedge recently reported on an interview given by Lithuanian ECB council member Vitas Vasiliauskas, which demonstrates how utterly deluded the central planners in the so-called “capitalist” economies of the West have become. His statements are nothing short of bizarre (“we are magic guys!”) – although he is of course correct when he states that a central bank can never “run out of ammunition”.   BoJ governor Haruhiko Kuroda Photo credit:...
  • Jackboot 2How the Deep State’s Cronies Steal From You
      Expanding in Ireland DUNMORE EAST, Ireland – We came down the coast from Dublin to check on our new office building. For this visit, we wanted to stay somewhere different than we normally do. So we chose a small hotel on the coast, called the Strand Inn.   Irish landscape with alien landing pads. Even the guys from Rigel II have heard about Ireland's corporate tax rate. Photo credit: Tourism Ireland   It is an excellent place for seafood and soda bread on a...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com