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.
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Dave Kranzler spent many years working in various Wall Street jobs. After business school, he traded junk bonds for a large bank. He has an MBA from the University of Chicago, with a concentration in accounting and finance, and graduated Oberlin College with majors in Economics and English. Dave has nearly thirty years of experience in studying, researching, analyzing and investing in the financial markets. Currently he co-manages a precious metals and mining stock investment fund in Denver and publishes the Mining Stock and Short Seller Journals. Contact Dave at dkranzler62@gmail.com.
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