To Unleash or Not to Unleash, That is the Question…
LOVINGSTON, VIRGINIA – Corporate earnings have been going down for nearly three years. They are now about 10% below the level set in the late summer of 2014. Why should stocks be so expensive?
Example of something that one should better not unleash. The probability that a win-lose proposition will develop upon meeting it seems high. It wins, because it gets to eat…
Image credit: Urs Hagen
Oh, yes… because the Trump Team is going to light a fire under Wall Street. But they must be wondering about that, too. Raising up stock prices – as we’ve seen over the last eight years – is not the same as restoring economic growth and family incomes.
And as each day passes, the list of odds against either seems to be getting longer and longer. As the petty fights, silly squabbles, and tweet storms increase, the less ammunition the administration has available to fight a real battle with Congress or the Deep State.
Still – “Goldman Stock Hits Record on Bets Trump Will Unleash Wall Street,” reads a Bloomberg headline. Goldman Sachs is a pillar of the Establishment, with its man, Steve Mnuchin, heading the Department of the Treasury. So a win for Goldman is not necessarily a win for us.
“Unleashing” suggests a win-win deal, as in allowing the financial industry to get on with its business. But there are different kinds of “unleashings.” Some things – like Dobermans – are kept on a leash for a good reason. Unleashing the mob… or a war… might not be a good idea, either.
Untying Wall Street from bureaucratic rules is at least heading in the right direction. But it will only benefit the Main Street economy if Wall Street is doing business honestly, facilitating win-win deals by matching real capital up with worthy projects.
A chart of the median price/revenue ratio of S&P 500 Index components recently shown by John Hussman. We conclude that Wall Street was “unleashed” long before Mr. Trump appeared on the political scene. But why this should be considered bad? Haven’t those riding this market to such absurd levels of overvaluation made out like bandits? Why not be happy for them and leave it at that? Unfortunately, it is not that simple. Let us consider just two problems. 1. Titles to capital only become extremely overvalued when the money supply and interest rates have been tampered with. These valuations are a symptom of extreme shifts in relative prices in the economy – they prove ipso facto that large amounts of scarce capital have been and continue to be malinvested. All of society will pay a price for this. 2. From the perspective of all market participants, whether investing is their job, or whether they are only indirectly exposed to the market through e.g. a pension fund, there will be no winners once the music stops. When an investor takes a profit, someone else must buy from him. Regardless of the trend in prices, there are no “unowned” stocks floating about in the ether. There is no way the class of investors as a whole can escape the eventual losses. Even worse, when prices retreat, the debt that has been incurred on the way up – from margin debt to the debt companies have taken up to buy back overpriced stocks – is not going to shrink with them – click to enlarge.
Deep State Industry
That, of course, is what it is NOT doing. It is a Deep State industry aided and abetted by the Fed’s fake money. The “capital” (really, money out of thin air) it helps allocate is fraudulent – provided to the elite at preferential rates by the Fed banking cartel.
That leads to a whole host of fraudulent transactions, losing propositions, and win-lose deals. The public has to borrow money at twice the interest rates of the elite in business, finance, and government. Why? The risk is lower.
If Goldman or GM gets into financial trouble – even with their favored lending rates – the feds bail them out. If the man in the street is unable to pay his mortgage, he loses his house.
This unfairness is at the heart of today’s economic system. It’s also the source of the discontent felt – but maybe not fully understood – by the masses and the current administration.
Dr. Fed explains to J6P how it works.
Cartoon by Rick McKee
The typical household has less earned income today than when the century began. It should have been the biggest, most successful period in human history.
Why are American wages sagging?
After all, the number of patents has exploded. So has the pace of technological innovation. The number of people with advanced college degrees, too.
Meanwhile, the feds have pumped $37 trillion in excess credit – above and beyond the traditional relationship between debt and GDP – into the system over the last 30 years. And corporations are more flushed with cash than ever before…
So, how come an economy with more technology than ever before, with more trained workers than ever before, with more “capital” available than ever before –
lowers household incomes, grows at only roughly half the rate of the 1960s and 1970s and registers the weakest “recovery” in history? How come?
As noted above, some things should better not be unleashed… Nixon probably didn’t even realize what he had let loose when he defaulted on the gold exchange standard. But that’s precisely the problem, whether it’s politicians or bureaucrats, every time they tinker with the monetary system in grand style, they have actually no idea what they are doing. One thing is clear beyond doubt though – a system characterized by constant inflation of money and credit benefits a small group to the detriment of everybody else – click to enlarge.
Globalization, Mexico, regulation, China, automation, inequality, financialization – they all have been blamed. But you know the real answer: because the money system is counterfeit.
It benefits the elite of Washington and Wall Street, but not the rest of us. And “unleashing” Wall Street – without a return to honest money – means allowing this Deep State beast to prey even more on average Americans.
Charts by John Hussman, St. Louis Federal Reserve Research
Chart and image captions by PT
The above article originally appeared as “Should Trump “Unleash” Wall Street?” 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.
You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Most read in the last 20 days:
- Gold – An Overview of Macroeconomic Price Drivers
Fundamental Analysis of Gold As we often point out in these pages, even though gold is currently not the generally used medium of exchange, its monetary characteristics continue to be the main basis for its valuation. Thus, analysis of the gold market requires a different approach from that employed in the analysis of industrial commodities (or more generally, goods that are primarily bought and sold for their use value). Gold's extremely high stock-to-flow ratio and the main source of...
- India – Is Kashmir Gone?
Everything Gets Worse (Part XII) - Pakistan vs. India After 70 years of so-called independence, one has to be a professional victim not to look within oneself for the reasons for starvation, unnatural deaths, utter backwardness, drudgery, disease, and misery in India. Intellectual capital accumulated in the West over the last 2,500 years — available for free in real-time via the internet — can be downloaded by a passionate learner. In the age of modern technology, another mostly...
- Cracks in Ponzi-Finance Land
Retail Debt Debacles The retail sector has replaced the oil sector in a sense, and not in a good way. It is the sector that is most likely to see a large surge in bankruptcies this year. Junk bonds issued by retailers are performing dismally, and within the group the bonds of companies that were subject to leveraged buyouts by private equity firms seem to be doing the worst (a function of their outsized debt loads). Here is a chart showing the y-t-d performance of a number of these...
- Pulling Levers to Steer the Machine
Ticks on a Dog A brief comment on Fed chief Janet Yellen’s revealing speech at the University of Michigan. Bloomberg: “Before, we had to press down on the gas pedal trying to give the economy all of the oomph that we possibly could,” Yellen said Monday in Ann Arbor, Michigan. The Fed is now trying to “give it some gas, but not so much that we’re pushing down hard on the accelerator.” […] “The appropriate stance of policy now is closer to, let me call it...
- French Election – Bad Dream Intrusion
The “Nightmare Option” The French presidential election was temporarily relegated to the back-pages following the US strike on Syria, but a few days ago, the Economist Magazine returned to the topic, noting that a potential “nightmare option” has suddenly come into view. In recent months certainty had increased that once the election moved into its second round, it would be plain sailing for whichever establishment candidate Ms. Le Pen was going to face. That certainty has been...
- Mea Culpa – Precious Metals Supply and Demand
Input Data Errors Dear Readers, I owe you an apology. I made a mistake. I am writing this letter in the first person, because I made the mistake. Let me explain what happened. The wrong stuff went into the funnel in the upper left-hand corner... I wrote software to calculate the gold basis and co-basis (and of course silver too). The app does not just calculate the near contract. It calculates the basis for many contracts out in the distance, so I can see the...
- The Cost of a Trump Presidency
Opportunity Cost Rears its Head Last Thursday’s wanton attack on a Syrian air field by the US and its bellicose actions toward North Korea have brought the real cost of candidate Trump’s landslide victory last November to the forefront. It didn't take long for Donald Trump to drop his non-interventionist mask. The decision was likely driven by Machiavellian considerations with respect to domestic conditions, but that doesn't make it any better. Unlike...
- Heavily Armed Swamp Critters
Worst Mistake GUALFIN, ARGENTINA – By our calculation, it took just 76 days for President Trump to get on board with the Clinton-Bush-Obama agenda. Now there can be no doubt where he’s headed. He’s gone Full Empire. Not that it was unexpected. But the speed with which the president abandoned his supporters and went over to the Deep State is breathtaking. Once there was only a Trump fragrance called Empire... now he has gone full empire himself Among the noise...
- Central Banks Have a $13 Trillion Problem
Paycheck to Paycheck GUALFIN, ARGENTINA – The Dow was down 118 points on Wednesday. It should have been down a lot more. Of course, markets know more than we do. And maybe this market knows something that makes sense of these high prices. What we see are reasons to sell, not reasons to buy. DJIA daily (incl. Thursday)... it was just taking a rest - click to enlarge. Nearly half of all American families live “paycheck to paycheck,” say researchers. Without...
- Hell To Pay
Behind the Curve Economic nonsense comes a dime a dozen. For example, Federal Reserve Chair Janet Yellen “think(s) we have a healthy economy now.” She even told the University of Michigan’s Ford School of Public Policy so earlier this week. Does she know what she’s talking about? Somehow, this cartoon never gets old... If you go by a partial subset of the ‘official’ government statistics, perhaps, it appears she does. The unemployment...
- French Selection Ritual, Round Two
Slightly Premature Victory Laps The nightmare of nightmares of the globalist elites and France's political establishment has been avoided: as the polls had indicated, Emmanuel Macron and Marine Le Pen are moving on to the run-off election; Jean-Luc Mélenchon's late surge in popularity did not suffice to make him a contender – it did however push the established Socialist Party deeper into the dustbin of history. That was very Trotskyist of him (we can already picture a future Weekly...
- Trump Is An Insider Now
Conspiracy of the Few GUALFIN, ARGENTINA – “U.S. stocks fall on Trump talk…” began a headline at Bloomberg. Or it may be Trump action. We had already counted six major campaign promises – including no O’care repeal and no “America First” foreign policy – already buried (some for the better). A bunch of campaign promises get the MOAB treatment... A great many theories have been proposed to explain Trump's recent series of u-turns: 1. he is in thrall to...