Send this article to a friend:

February
23
2017

Unleashing Wall Street
Bill Bonner

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 .

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

Fraudulent System

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

“Over time, the patterns of history tend to repeat themselves. Our goal is to put our subscribers on the right side of history, even if it should take years before it becomes obvious.”

– Bill Bonner

At Bonner & Partners, our readers pay us to notice what the mainstream media ignores. Every day we help you look behind the curtain of Wall Street and Big Government. Our goal? To prepare you for big disasters before they happen.

Bill Bonner started his research firm in 1978. Since then he and his team have exposed and predicted the world’s most disruptive events. Today Bill’s firm is the largest underground research network on the planet.

bonnerandpartners.com