The Arsonists At The Federal Reserve Are Getting Closer To Destroying ALL Financial Markets By Purchasing Stocks
As a person who has spent the last few years extensively studying stock market investing and valuation that has remained prudent in terms of not buying heavily into markets that were massively and clearly over-valued directly as a result of near zero rates in the market created by the Federal Reserve, which lead most companies to be by far the largest buyers of equities over the last several years thru stock buybacks, I'm now literally sickened by what's happening, which is the reason I feel it necessary to create these posts and share this information with other people whose futures will surely be affected by what's happening currently.
The Fed purposely created an environment where real earnings were in most cases falling but Earnings Per Share (EPS) continued to rise, along with stock values, simply because EPS is calculated by dividing Earnings by the number of shares outstanding. Less shares (buybacks), higher EPS. Thru this mechanism managements became unimaginably richer and the stock market soared well beyond any measure of reason. Fundamentals were thrown out the window. Investment principles became largely useless. A vortex was created and people were pushed inwards in the absence of safe investment vehicles that generated stable returns. Savers were destroyed and the older segment of the population getting close to or in retirement were given little choice but to chase returns thru heightened levels of risk and extreme imprudence or to wait things out until normalcy returned.
During this period, corporate management and boards encouraged disastrous decision making, which was to take on massive amounts of debt to buyback shares at extremely elevated prices, pumping the share price in the short run, but creating systemic company risk in the long run. Most of these same companies only a week or two into tough financial conditions have ran to the Fed demanding they be bailed out by the taxpayers! Think about the absurdity of all of this. While a few hundred billions was promised in meager stimulus checks to the average citizen, trillions are being passed out to corporate America almost instantly! Of course, the trillions of dollars that were spent on buybacks should have been used to prepare for tougher economic times ahead. Traditionally, we have a recession in the vicinity of every 10 years or so, and this was already the longest "expansion" in history, so everyone knew we were getting close to the end of the debt cycle, including corporate boards and management. However, instead of using this cheap debt to prepare they went all in and pumped their stock prices to the stars. Why do you think that is?
So here's where things get ugly. Normally, when fundamentals get out of whack, markets are the mechanism that make things adjust back to where they were supposed to be in the first place. Markets and price discovery are by definition there to correct things when they're out of whack. They correct mal-investment. They punish companies for acting silly. They make it so investors who are patient and are operating based on sound fundamentals have an opportunity to buy assets at fair prices and investors who have made bad decisions lose out. They get rid of companies that are inefficient and are operating on borrowed money and don't have a viable business model. America is currently laden with companies that do not, and in many cases, never have earned more than the interest on their debt! Think about that one. These companies that look all shiny and cool don't earn any money! They lose money month after month, year after year! All kinds of companies are operating simply by borrowing more and more money to stay in business and pay back the interest on their debt and pay dividends, etc. Imagine what it must feel like to be a company that has to earn money to pay your bills, payrolls, and salaries and earn a profit when you're competing in a market against companies that are borrowing endless money for close to free, are using venture capital, and are willing to lose money indefinitely to take you out of business! This is where we've been for many years now. This is why it's harder and harder to own and run a profitable business and why major industries are increasingly owned by fewer and fewer corporations.
Take real estate for example, my profession. Imagine all these huge hedge funds, financial companies, REITS, VC's, etc. that can issue debt at close to zero interest rates. They then go into the market and buy assets - residential rentals, commercial buildings, etc. Whereas, the mom and pop has to go out and pay retail mortgage rates to buy an asset and try to compete. Cap rates have been so low for such a long time that for several years now a mom and pop, even with 25% down, cannot really break even or compete. During the last housing downturn, large companies came into the market and bought up hundreds of thousands of rentals. In a time where it was extremely hard to get financing for the average person, these companies were flush with liquidity created by the Fed and were able to borrow for extremely low rates compared to us on main street. Imagine more and more of the housing supply being owned by large corporations that control how much people pay in rent and further limit people's ability to own a property to avoid having to pay rent forever. What do you think is going to happen this time with more money being printed than ever imagined being given to these same operators at nearly zero cost? As most of you know, I'm a real estate broker. How many companies have come into the market trying to reduce our commissions and take us out of business? Several. Many of these companies start on venture capital, transition to an IPO to raise more money, and then go on to raise money thru dirt cheap debt all while making very little profit at all! In many cases, they never earn a profit. Hard working brokers/agents are out there trying to compete with a company that doesn't have to earn a profit that is trying to drive us out of business to takeover market share, so they can then raise prices at will in the future and turn us into their low wage hourly workers. This has not been a level playing field! This has happened in all kinds of industries. Normally, interest rates and having limits to the amount of debt a company can safely borrow, hence markets and fundamentals, are the mitigating factor in allowing these Zombie Companies to exist. Of course, since the Great Financial Crisis, the Fed has destroyed the way these markets should operate by making money flow like water thru financial institutions and corporate America, and it has pushed everyone into the vortex of risk to try to earn a return, while it makes it so companies that shouldn't be in business thrive.
Everything the Fed has done has made the middle class poorer and poorer, while making the richer vastly richer. Hence the great divide between the 1% and everyone else. In the last few weeks, instead of allowing the market to do it's job and sweep out all the mal-investment and bad decisions and corrupt activity, the Fed is coming in with nuclear bombs making all of these bad operators completely whole. Think about it, people are still waiting for news on their $1200 stimulus check, and we're being sold on the fact that the Fed is saving the day by dolling out TRILLIONS of dollars of your money! Think of the Fed as the arsonist that created the biggest fire in the history of the world. They're now acting like they're our saviors by pouring massive amounts of fuel directly onto the same raging inferno! They have us all convinced they're here to help us! Think about the absurdity to all this.
Now, here's the very scary part. As the Fed has already been buying any and all kinds of debt to make it so the riskiest corporations now have access back into a liquid market to hopefully push them to take on even more debt, the whispers for the Fed to start buying the stock market now are seemingly being heard. The Fed has already destroyed the foundations for most capital markets and financial markets by buying all the bad debt and forcing interest rates artificially low across the board. Stock values must be a reflection of a companies earning power, longevity, growth potential, etc. If the Fed starts buying up stocks with printed money, the entire idea of investment no longer has any merit. Prices will likely be pushed ever higher, as the Fed is a buyer with limitless power - PRINTED MONEY! Only people connected to the Fed or at the top of corporate America will really know what's coming next and be in a position to profit from the trades of the Federal Reserve. Average Americans will have no other choice but to participate in the greatest ponzi-scheme of all time and desperately try to buy into assets that are so over-valued that only a fool would dare invest their hard earned money. And if they don't, they may never have a chance to participate in the fake asset bubbles being created now by the Fed. The 1% that owns most of the assets already will get vastly richer as the Fed continues to print money, allowing them to completely take over the world! The future of the average American is being stolen right before our vary eyes, while we're being told we're being helped. Are we really going to allow this to continue?
