Along with almost everything sane people use to believe was the Truth in America, the US Stock Market is just one more lie. It has turned into a game of the Fed and Corporate Boardrooms, not free market Capitalism.
If you do invest in stocks (and don’t believe anything I say here as I am not an investment adviser nor am recommending anyone buy or sell stocks specifically in this article nor I do not own, rent, lease or have interest in any company owned by Hunter Biden and his Pop) you should at least know that little fact. Finance is boring, so will try to make this 10% interesting (the other 55% will be about math).
If you did not want to be a big investor in the stock market over the last few years because it was too opaque and no longer controlled by reliable economic factors over the long term, you (like me) may have a pretty big opportunity cost (losses from not investing in the market) and are maybe not as wealthy as some of your neighbors who were “all-in”. At least my nest egg sits relatively secure, but sadly earning very little.
Since 2008, the stock market has been ramped up by two main factions: The Fed (Quantitative Easing) and Corporate Boardrooms (The Buyback).
This article is about how much poorer your “all-in” neighbors will be if they continue to listen to their “never sell”, “never time the market” investment advisors. These advisors help run the “Ponzi” scheme and submit to the “Greater Bank Fool Theory” where more and more Central Bank buyers are needed to support ridiculously high stock prices, while the people in the know (i.e. not us) will start a massive selloff. Mainstreet buyers are no longer needed to prop the market. And, when the fan gets whacked no stop-loss program will help you as you are just the “little guy” who will get as slaughtered as the Shoe Cobblers who became investment advisors in 1929.
The Fed has been “buying” the stock market that otherwise would have collapsed on its own, yielding the economic corrections to Big Government we should have had years ago. Although there is no proof (yet) I believe they do this directly through Bank purchases of stock indexes with QE monopoly money deposited to them that are awaiting some form of distribution via loans or US Treasury bond purchases (they are doing direct corporate bond purchases via index funds now). The NY Fed even has a trading floor and has JP Morgan manage trillions of their assets. This is presumably (wink wink) only to buy US bonds. Another big Central Bank, the Bank of Japan, has already been purchasing US stock indexes.
Stocks have gone up with the new FED policy supporting the Rich 401-Kers (Investors) over the Not Rich Working Classes (Savers) by forcing people, many of whom are my friends who don’t understand what is happening, to invest their meager nest eggs in the stock market because alternatives are simply off the table with near negative interest rates. Even though you have savings that you want to protect, you don’t want to earn nearly nothing. So you HAVE to buy stocks, or bonds which are even more inflated because of the never ending zero interest policy of the Fed.
Stocks HAVE gone up, a lot, co-incidentally it seems at the actual rate of inflation. But playing in that game where there is no underlying economic reality can be deadly, you just don’t know when it explodes. Even if you do make money in the market, I suggest it is immoral to do so on the backs of future generations that essentially pay for your gains when they must pay off the astronomical QE debt. Who do you think will be paying for all the Trillions of QE money going into stocks? Our kids, and theirs.
Some stocks and corporate bonds can at least get you a decent dividend or yield but even then you are well below actual inflation in our economy. Inflation that is not reported. They do not want you to know this. From Management Study Guide on Inflation:
The goal of the central banks is to keep inflation at a bare minimum. However, the policy of quantitative easing does the exact opposite. Since this policy creates money and uses this money to further amplify lending by using this money as reserves, it is inherently inflationary.
But they hide it, so far. The cost of living has been going up so rapidly in the last 20 years that half of America with two wage earners have virtually no savings in the bank. Part of the problem are medical and higher education costs that have had a massive impact on savings, along with no interest on said savings. You are forever in a Fed induced inflationary hole, that is unless you are a Wall Street investment banker or a tenured professor at the heavily endowed University of Lalaland.
Granted, some people are living well beyond their means and happy with their leased luxury cars and all that Bling, but many don’t engage in that phenomenon and still cannot make it on two wages. If cost of living was even remotely close to the levels reported by the Government with a contrived CPI none of this could not be happening. Half of America would be living with savings accounts having more than 2 weeks emergency backup pay. They wouldn’t be fearing a health crises that could put their family into bankruptcy.
So, why doesn’t the government just tell the truth on Inflation? They have no choice but to lie. Real inflation, likely in the neighborhood of 8-10% annually vs the 1-2%, cannot be reported because interest rates would have to rise to combat the ever declining dollar. Here is actual inflation (less the cost of rising taxes) as calculated before changes were made to make inflation artificially low for never ending QE: http://www.shadowstats.com/alternate_data/inflation-charts).
The results of all this are many, but your Government does not want to report real inflation because if the Fed Funds rate just regressed to the mean in the 20 year period prior to the Too Big to Fail Taxpayer Financial Bailout of 2008 (approximately 4.5%) we would be in big trouble.
Some people believe that the dollar is on the verge of near collapse up to 30% by 2022 due to real inflation and our $28 Trillion debt.
If inflation was truthfully told, bad things will happen:
- Stock Market Collapse (no reason to buy insanely priced stocks, keep reading)
- Real Estate Collapse (can’t qualify to buy median price home when payments shoot up by half)
- Government Collapse (can no longer viably finance 28T when paying normalized rates to lenders)
People would bail on stocks because the reason they bought stocks in the first place (no interest on savings), even in times of near depression as we have today, would simply cease to exist. Are stocks too high now? Emphatically yes.
Stock Valuations. I could just stop right here with my TESLA example. TESLA is now worth Billions more than the stock market valuations of GM, Ford, Toyota, and Honda – Combined. TESLA is valued today as if every one of those companies are already dead and gone and there are only TESLAS being driven on the streets of America. If you have purchased TESLA stock, just make sure it’s with the same sort of Play Money that the Fed uses to prop the stock and bond markets. Also, like that gorgeous blonde in High School who was so popular that she was fighting off guys like bees to honey, TESLA is that woman to all the Left wingers who don’t know much about stocks or how they are valued as long as we are fighting Climate Change, their new Religion.
But, how should we value the market generally? Well, you can be a rosy Motley Fool guy who said just before the Dot.com bust (see chart below) that conventional valuation methods no longer apply because we are entering a “new paradigm” of value. The Motley Fool Stock Valuation System at the time was a simple momentum play: Buy stocks that are going up. That is not so bad for short term day traders but these guys meant buy AND HOLD, which turned out to be horrific investment advice and some of their followers likely went bankrupt. The Motley Foolers had lived up to their name.
American people are largely ignorant and when combined with amnesia can be deadly for the rest of us.
P/E (Price/Earnings) Ratios. It used to be that the widely recommended trailing P/E ratio was a good tool for buying stocks. Then, almost all of the investment bankers and brokers decided to change the game by valuing on FORWARD P/E ratios. This is just a magic trick. Nobody knows what the future holds, just like myself when I bought GM years ago a few months before the heretofore unknown pension problem was exposed. I no longer buy individual stocks for that reason.
So, the best measure is a trailing P/E which is based on actual as reported earnings, not some broker’s pie in the sky estimate that may or may not happen. And everything is always rosy to someone on commission.
I discovered the Case Schiller Trailing P/E ratio some time ago and I believe it is a good measure of stock market valuation overall because it uses a 10 year Trailing P/E ratio, adjusted for inflation. This takes out the big bumps in the road. If you look at the Case Shiller S&P 500 P/E now, I think you can say it is a bit alarming:
As of 12/24/2020, the current S&P P/E ratio is 33.7. This means that stock price valuation of the S&P 500 is 33.7 X 10 Year trailing inflation adjusted earnings. I have inserted a red bar to show how high that really is. Stocks are currently priced more than twice as high as the historical median, yet I hear people that were educated in College with MBAs in Economics or Sociology on Yahoo Finance say “It’s only up from here!”
Even more alarming is that if we were to use a 5 year trailing P/E it would be even higher still because the massive earnings reductions this year when Covid-84 hit would have more impact over a 5 year period than a 10 year period.
Stock prices are even higher now than in October 1929, Black Tuesday on the chart. I submit this as PROOF of the Fed buying stocks directly, it could happen no other way to keep stocks in record territory during massive Covid induced unemployment, a global recession and near Civil War. The pattern is as clear as Election Fraud – when the market suddenly dips on huge volume, it is suddenly bought on huge volume. If it walks like a duck?
Going back to the beginning of the 20th century, the only time it was higher and for a very short time, was the Dot.Com bubble in 1999/2000. I’m old enough to remember the Dot.com era and it was all about the birth of the Internet. Everybody was on board and the tech economy was rolling like a mile long freight train with Biden at the helm. It was the time of irrational exuberance. Clinton got credit for the economy he witnessed but he had zero to do with this organic new technology.
Then reality finally hit and even non Tech stocks went down 50% or more. Many Tech stocks lost 70% or more in value, most of the purely internet companies went bankrupt.
But at least back then there was an altogether new future that many could see, and that actually did occur as we are witnessing the Big Tech effect today – the virtuality of our economy. But today we have the highest trailing P/E ratio in US History (ex Dot.com) yet don’t even have the justification of a rosy transformative future. Today’s future includes more lockdowns and the destruction of the economy with a possible Marxist revolution. Small business (the backbone of America) is dying at the highest rate in my lifetime. But the market is at all-time highs.
Buybacks. Also juicing stocks to the unheard of levels we see today are Corporate Buybacks that have grown astronomically since 2008. Officers in large companies are highly incentivized to buy back their own stocks, pushing prices higher and higher in what may be the best Ponzi scheme imaginable for the upper crusters. If you ever worked for a large company, worked your tail off, met your performance objectives handily and still got a crappy 3% raise, now you know why. Profits that should have gone into salaries and capital investments for the future went into their own stocks and into the pockets of top management and others lucky enough to get in on the bump up the stock price game. Buybacks takes shares off the market. This makes stocks go up as earnings per share increases. And, surprise, the executives approving your measly raise got handsomely rewarded with their options and other stock price incentives. He who has the Gold makes the Rules.
Buybacks at S&P 500 set a record $806.4 billion in 2018. S&P 500 companies repurchased another $728.7 billion of stock in 2019. Those numbers have massive effects on the market.
I contacted the SEC to make the case that buybacks were actually ILLEGAL stock price manipulation. I based this on a simple premise. Companies have to report to the SEC how much of their own stock they will purchase in any given buyback plan but they do not have to report when they will buy. So, without the timing requirement, they can buy their stock whenever they want to effectively put a floor on the price if there is bad news on earnings or other calamity, like the Boeing fiasco. Not surprisingly, Boeing had one of the biggest buyback programs in US history. Boeing spent $11.7 billion in 2017-2019 on repurchasing stock before suspending buybacks in April 2019 because of the 737 Max crisis. I would suggest that they knew what the 737 Max was going to do to the company and it’s better to have your stock drop 50% after you boosted the stock by 100%.
Now, if they were to buy at prescribed times reported to the SEC unaffected by market timed purchases like dividend payouts, this would be credible, although still not a wise use of funds for most companies long term future.
The end result of all this is that companies boosted share prices well beyond natural market valuations because they manipulated the market. And when these stocks go up, others that don’t have big buyback programs also go up because so many of these companies are in index funds which are tracked and bought by individuals and big institutions. Ultimately, reality sets in (like inflation will) and stock prices will fall but not after massively inflated gains have occurred.
So, combining FED actions with Corporate Buybacks means that even in the face of economic disaster, as we have now, you can reach new – and ever more insane – highs.
The contrarian argument to the above is pretty simple. As long as the Fed keeps printing money that finds its way into the market, you can’t go wrong. There will always be a quick and rapid rebound from any selloff. But this game of chance WILL end when inflation takes hold so that it can no longer be hidden and interest rates go up. Then, none of us in the market will be able to catch the falling knife greased with lies about inflation and the bubbling economy. The market can easily collapse all at once by 50-70%. And as I said, investing in the market is immoral by putting our stock market gains on the backs of future generations.
The Final Showdown – Inflation vs QE. Nobody can say when the financial collapse will happen. But when you start to see that the inflation lid can no longer be kept closed with fake Government Inflation reports and rates begin to rise slowly, and then more rapidly to combat what will become hyperinflation, if you aren’t already out of the market it will be too late.
All said, if the coup is successful and America goes Communist Reset and you are not in a free economy Secession State, you eventually won’t have any private wealth or property to speak of anyway. Then it’s all moot when a loaf of bread is $100 and you can just light your Cigars with the old worthless currency replaced by Virtual.
Time for the Glen Livet.
Sic Semper Tyrannis
Post(stimulus)script 1: https://m.investing.com/news/
Post(stimulus)script 2: https://markets.
This is why a federal reserve system is a legalized thievery. If the reserve can print the money it needs to buy real assets and forces the American public to pay the tab on the printing … Well work that out. It has gone on for decades.
The only thing that one can draw from this is that even in a secession state there will be a fight. The heavily commie states hold the major ports. No state will be allowed to keep assets.
Ports? Ummm, Charleston ain’t in a commie state. Nor are Tampa, Miami & J’ville. Mobile, NOLA – nope as well. Savannah? Morehead City & Wilmington NC? Then there’s Tejas…
NYC ceased to be a significant port eons ago. Have no idea about Bawston. West Coast is toast, yup. I think you have to have an armed corvette or battleship escort to berth in Baltimore.
Great article T4!
Yes, there is a slaughter coming of epic, never seen before proportions. The smart money is already heading to the exits with 10x sales for every purchase by insiders.
I got out years ago because the fundamentals made no sense. Here we are with the FED still pumping the balloon wildly beyond any rationalization.
Dow 50,000! Big deal and who cares if the money is worthless.
The masses are sadly gonna get creamed.
“Buybacks takes shares off the market. This makes stocks go up as earnings per share increases.”
Question: Does this mean the stocks that were bought back are no longer used in the P/E equation?
Yes. PE = P (Price per share)/E (Earnings per share). Earnings per share = total earnings / total shares outstanding. Shares that are bought back are no longer considered outstanding. You can increase the resulting number by either 1) increasing the numerator (earnings), or 2) decreasing the denominator (shares outstanding). Many moons ago, EPS was increased almost entirely by increasing earnings…not so much anymore.
Not to be impolite, but you’re wasting your time with all this. Scratching your head on the P/E ratio of companies is irrelevant at the moment. That’s not what this is about. “TESLA is valued today as if every one of those companies are already dead and gone and there are only TESLAS being driven on the streets of America.” That’s not a great analysis. Here’s the bull case for Tesla going back a couple years. One of the few truly innovative companies out there, led by a Thomas Edison level genius. That’s your backstop. Now throw in ridiculous bought and paid for short seller media bashing it down, and it starts to look interesting. Throw-in the Robinhood day trader mania, and you end up with a rocket. Not investing in the stock market going forward would be the biggest mistake of your life. Why? Because Trump just signed another two and a half trillion dollars of stimulus. It’s all going to end up in the market. The market doesn’t have any mechanism to go down. That money has to go somewhere. There are not enough corporate profits to give everyone a return on their money. So inflation is the only answer. Dow at 30,000 now, watch where it is at the end of Q2 and Q4. Stuffing another 2 trillion dollars in there can only inflate, and it will.
star is correct and has been correct for several years when everyone reading this, including me, were dead wrong on TSLA.
He’s dead right on P/E evaluations as well. Growth companies invest in growth and profits come later. What was Amazon’s p/e, or FB, or Google, and so many other companies that came on the scene during the tech boom that is still going on. That’s what The Motley Fool as well was saying that tr4 here disparaged.
tr4 is correct that central banks have loaded up on stocks. Japan’s CB owns a huge chunk of the Nikkei and the Swiss CB has an extra large position in Apple for example.
It is the central banks that are the problem. Corruption follows their introduction and over the years economies and political systems decline and fail.
The answer is money, real money that is not controlled by some higher entity that always and forever leads to uncontrollable spending, as pandering and theft is a way of life at the top.
Enter Michael Saylor of Microstrategy. He and his company just took a half billion dollars off the balance sheet and put that much in Bitcoin. Then he borrowed another half billion dollars and added more Bitcoin. Hedge fund managers participated in this lending. Others are and have bought large positions in Bitcoin. Heard of Dalio or Druckenmiller? Elon Musk spoke with Saylor about this.
You want to know what the “playbook” is? It is analogous to Soros’ and Britain’s central bank interaction. As billionaire after billionaire converts fiat into BTC, what will happen? As Max Keiser says, this is a “vector” out of central bank hegemony. He predicts the demise of at least one in the next year or two.
If you have a ROTH, consider getting a self-directed one by forming an LLC and filling it up with BTC.
Um, so what do you do if you need to cash in some bitcoin to say, buy a truck? What medium of exchange is used when you cash in your bitcoins?
There are many exchanges where you can convert Bitcoin to dollars and vice versa. Coinbase is popular and it is likely to go public in a month or two. Mainstream is just ahead! Really all you need to do is to log onto Coinbase and align your bank with it and buy or sell BTC or other cryptos like Litecoin and Ethereum.
Soon the Dealerships will prefer the BTC.
I just read that an NFL player signed a contract that stipulated he be paid 50% in bitcoin.
If he were smarter he would have insisted he be paid in US coin only.
On the Feds balance sheet coins are listed as an asset. FRN”s are listed as a liability.
Weird I know.
If you align your bank with bitcoin, how do you remain anono?
There is no anono. But you can still make a buck.
I thought the greatest thing about bitcoin was being anon. Maybe I was wrong. The best thing is that bitcoin can’t be taken by the government? If true, connecting to your bank cancels that out, no?
You say the answer is money. Real money.
How much Real Money is the globe able to absorb?
This is how I’ve failed so miserably at NOT staying in a market. This same Market surely is not connected to the United States alone. So…if the global market that props up this shitshow called the DOW hiccups?
And a ballooning Digital Currency is the remedy?! Holy Shit.
I’m happily going to continue watching the parade go by, thank you.
Before 1913 and the Fed while on the gold standard there was real money in the sense that there was price stability for 100 years. No income tax either.
Everything you wrote sounds …. wrong. I can’t tell you why. It just does.
Well, maybe it’s the Everything-Is-Just-Peachy-Keen aspect. Buy Now! It’s always a good time to buy!
You sound like Jim Cramer on steroids.
I will grant you that Musk is a visionary. But dont forget that he is also a crook.
“All said, if the coup is successful and America goes Communist Reset and you are not in a free economy Secession State, you eventually won’t have any private wealth or property to speak of anyway. Then it’s all moot when a loaf of bread is $100 and you can just light your Cigars with the old worthless currency replaced by Virtual.”
Questions:
1) if you have a paid off home, how will you lose it?
2) Are you saying go all in on bitcoin?
1. Property taxes raised to insane levels.
2. Bitcoin? How about gold, silver & lead? The last is essential to keeping the 1st two.
“Property taxes raised to insane levels.”
And the local community would stop paying taxes and then set up for their “come and take it” revolution.
Yes, the market will crash. But that is a meaningless event. The market has always had its crashes. In the grand scheme of things, the value of the dollar is going to zero.
So what matters is what assets to hold.
In my opinion, gold and silver have stood the test of time and are the best choice.
Real estate, stocks, and cryptos can be considered.
Bonds and cash are going to be worthless.
Fine post, TR4
I greatly appreciate you making the case for the youngsters.
Thanks for the write up.
The stock markets ARE a big fat fucking lie and thanks for saying so.
Valuayshuns have nothing to do with anything. It used to be called price discovery as a result of Adam Smith’s famous invisible hand. It seems the only thing holding the marketz up is the fantasy that entities that make nothing but are at least entertaining are so valuable that an imbecile’s mode of non-essential communication i.e. Facefuck, can make persons rich beyond the dreams of avarice. And it has.
What has caused this? Auntie thinks the main reason is that he market’s invisible hand has been cut off and replaced by the hidden hand:
https://illuminatisymbols.info/hidden-hand/
Real companies that make things and provide actual services that build the wealth of a nation – feed, clothe, and house the people as well as employ them plus, in a better world, improve the social condition are apparently not necessary in a Schwabian World Economy.
Just keep them, the Lumpen, entertained and ignorant while everything is made in someplace else because it improves that most important bottom line issue in Hyper-Finance Crony Capitalism: shareholder/stakeholder value.
“You will own nothing, and be happy!”
-World Economic Forum
Auntie doesn’t know anyone who really needs to watch Tel Avi(v)sion, although it is a mighty convenient analgesic, plus palliative for Plandemic Lockdowns. Being a rather recent innovation from 70 years ago, but hell if that Nutflix really is really a steal at well north of $500 bucks a share cause, well, you know, celebrities, time-killing and “entertainment.”
When the world decides that the U.S. dollar is no longer special and drops it as the reserve currency; the Petrodollar arrangement ceases to be the standard; something take down the electrical grid or hacks a big computing operation; a rogue actor pulls off an EMP event; or the AI decides, autonomously, that Humans suck; the markets and a whole lot of other shit is going down and it shall be a marvel and a wonder.
Well said auntie. We have all the makings of a mania with collapse just down the hall.
You have your glasses on correctly Auntie. Nobody knows when. Or what will be the big trigger. One thing that worries in the back of my mind is that with all the insanity going on, wouldnt this be just the time for a major terrorist event? Kinda like CV84 pushing you over when you have all those “underlying conditions”. The Islamists are not asleep.
How to rob the poor and give to the rich.
1) pay .01% on saving accounts.
2) peg inflation rates at least 1-2%+
3) charge interest rates on loans at 2.75%+ and credit cards 10 to 25%+
The savers are reduced to poverty and the bankers get rich.
I am surprised the grey haired army of America has not revolted and ended our government.
And do not believe we have a two party political system Democrats vs. repiblicans. It’s the government vs. the debt slaves.