Tag Archives: infrastructure spending

Insanity Prevails In The Stock Market

The Dow and the S&P 500 stock indices are emblematic for the degree to which the U.S. economic, financial, political and social system has dislocated from reality.  Insanity prevails in a system that is corrupted to the core.   “Going down the rabbit hole” is a popular allusion in reference to the surrealism that has enveloped the American system.   I’d hazard to assert that it would take a few tabs of LSD to make today’s world believable. The fact that Donald Trump is President says it all…

With regard to the stock market, if you studied finance anytime from the 1950’s until the mid-1990’s, fell asleep for 20 years and woke up to today, you would conclude that the opposite of everything you learned is now the truth. It started in the late 1990’s when Greenspan coined the “new economy” mantra and scam artists like Henry Blodget got everyone to believe that “new economy” stock valuations could be derived from the number of “clicks and eyeballs” received by a company’s website. And I thought that was insane.

The market has never been more dislocated from fundamentals than now. Since when do stocks spike up on the threat of a rate hike?  Pretend rate hikes are now great for stocks and bad for gold even though historical evidence suggests that actual rate hikes have just the opposite effect on both asset classes.

I’m wondering if the hedge fund algos are already pricing in the move higher in stocks that occurs when the Fed fails to follow-thru on rate hike threats…While the Dow hits a new record every day, the amount of Government spending and debt hits a new record every 60 seconds. The rate of debt creation, public and private, dwarfs the rate of appreciation in general stock prices.

At the risk of being labeled a “conspiracy theorist,” it’s quite probable that the inside elite are gunning this stock market in order to bail out. Evidence? Insider selling has reached epic proportions. At some companies I analyze, the insider sell to buy ratio is over 1000:1. But the “purchases” are stock options exercised and then later sold. The purchases from cash out of pocket tend to be directors buying the gratuitous odd lot for sake of appearance.

One of my subscribers commented that, “I heard a guy on Fox Business say that Macy’s was a real estate play. As if re-purposing their real estate would happen and all would be wonderful.”  That’s the classic apology for a company sitting on a plethora of empty mall anchor space when big retailers start collapsing. Macy’s has been called a “real estate play” since the 1990’s. What is the actual value of empty mall anchor retail space? What do you put in there? Eventually they’ll be converted to homeless shelters and those are worth nothing other than “good will.”  Even this stock market doesn’t believe that one.  Here’s Macy’s stock:

Based on the graph above, the value of Macy’s “real estate” is about the same as the previous peak in real estate prices in 2007.   But real estate prices have been inflated to all-time highs on top of a helium-filled bubble of debt.  Macy’s certainly has more than its fair share of debt.  If this buffoon on Fox is correct, how come Macy’s stock is not at an all-time high?

A lot of eyeballs are fixated on March 15th, when the Treasury’s $20 trillion debt-ceiling limit becomes law.  But no one seems concerned other than those waiting for a Black Swan to appear and reset the system.  The reason no one on Wall Street or DC cares is that the solution simple.  Trump will sign an Executive Order mandating more Government borrowing.  With the stroke of a pen, Trump will obliterate the law.  Executive Orders will become the new de facto fiat currency that “backs” Treasury bonds and the dollar. Certainly a Trump EO is not any different than the current “full faith and credit” of the U.S. Government supported by the Fed’s de facto negative net worth.

The stock market is going parabolic on the back of the ideas Trump presented for making America great again.  Or at least so it seems.  But Trump’s plans do not have a snowball’s chance in hell of ever actually being implemented.  The country is already hopelessly broke – even pension funds are now starting to collapse (link) – and I doubt the entities designated to fulfill Trump’s spending dreams will accept Trump Executive Orders as payment in kind.

The entire system needs to be reset. The political system needs to be burned to the ground and rebuilt starting with the original Bill of Rights.  A good friend of mine told me that he was not buying stocks because the “forward ROR” when you buy stocks at a 30 p/e is 2%. But what is he using for “e” in the “p/e” equation:  adjusted-GAAP, non-GAAP or today’s fantasy GAAP?  The forward ROR for a system as corrupted and broke as the current one is zero.

When the elitists are done picking meat off the carcass, when the last crumbs of citizen wealth has been swept off the table, the  financial system will be reset and everyone will be starting from “ground zero.”    Until then, it’s unfortunate that only a few can see down into the deep abyss that has formed beneath the United States.  The rest have crawled down into that abyss and accept it as reality.