If you follow financial news, you may be asking yourself, why is the stock market all fucked up? You have probably seen charts like this lately:
Fucked.
Everything is in the shitter. People are declaring bankrupcty left and right. The world feels like it has gone to shit. But somehow the market is up. Recovered everything its lost and then some.
How, how is this all possible?
Every analyst will give you their own reasons for this, and they will all be different. As for The Right Reverend, Ill keep it down to three big reasons I see. Feel free to let me know if you disagree.
1. The Fed bought their way out of a recession.
In the #1 slot is the most obvious reason. The fed did some stupid ass shit.
Normally, if things start going bad, a bunch of different companies suffer. Many companies out there use debt to fund their day to day operations, expansion, etc. Well, it puts the company in a riskier position. In the event of a recession, especially one that is as bad as the current situation, a ton of poorly managed companies with a lot of debt, should have gone bankrupt.
The graph above Charlie Murphy is not something people have probably seen before. Its the assets that are currently being held by the Federal Reserve system. See, among the Fed’s powers after the great recession is to buy distressed assets. So, what did the fed do to get us out of a recession, they bought all the debt at face value. The Fed now has a whopping $7 TRILLION of questionable assets.
This has a ton of falloff effects. The amount of zombie companies, companies that would have had to declare bankruptcy if it wasn’t for the fed, is at an all time high. Buying debt to prevent bankruptcies is just falsely inflating the stock market. A bunch of companies should be out of the game if it weren’t for the fed.
The biggest falloff effect is what we are seeing right now with the Euro. Given all the decisions from the fed, investors are moving away from the dollar as the dominant currency. This could lead to a massive inflation event where the overinflation we see in the market will come crashing down.
And who will pay for it. Poor people, as usual.
2. There are enough companies that are crushing it to power the market
There are enough companies doing financially extremely well to power the market. Its that simple. Shit like Moderna, like P&G, like Publix, anything that is necessary in this hellscape. They are doing really well and their market cap is through the roof.
Look at Moderna. Fuckin, we don’t even know if their vaccine will work and their shit as almost quadrupled since pre-pandemic.
There are enough of these companies with big enough market caps to power alot of the uptick in the market.
3. The stock market hasn’t been tied to actual financial results for quite some time.
I have talked about this at length before. So, I will be brief.
There is built in disconnect between reality and the stock market. Fair Value is often driven by the moves of traders than it is by actual concrete financial results.
And the market is NEVER moved on the struggles of the working man.
At this particular time, all the market cares about is liquidity, the ability to buy and sell a security. And right now, they have that. And as long as they have that, the market is going to stay up. Regardless of what our nation’s GDP does, the traders don’t have to be stopped.
Someone described it as witchcraft. Its not witchcraft. Its finesse. We are all participating in The Great American Hustle. Its a dice game, and right now we just keep rolling sevens.
But one day….and probably soon….one day something will force reality to come crashing down. Maybe the world gets out of the dollar so much that the Fed creating money to buy securities wont help. Who knows. But….its going to come crashing down. Be ready.