And now for a glimpse of America’s investment world:
We’ve, thus, [reached the] market’s end time I said we would soon reach if stocks continued to rise above such basic fundamentals [sic] during the COVID era as sales and revenue. At first corporations and their investors agreed upon tricked-up earnings from fancy accounting to lay in their fantasy flight plans. [Gold star for vagueness here, but now it gets good.] Then they inflated earnings for YEARS by stock buybacks because earnings are quoted “per share,” and buybacks reduce the number of outstanding shares. Finally, the sudden stripping away of corporate taxes in the Trump era made earnings that were again looking weak suddenly look great again, but that wasn’t because business was improving; it was just because the bottom line exploded due to fewer taxes being taken out. So, throughout the past decade earnings were not rising because business (the economy) was thriving but because they were distributed over fewer and fewer shares and calculated by fancier and fancier means.
No one cared. No one cares still.
All that mattered was that the headline numbers kept getting better for years. So, the market soared far above the economy. [Trump loved it. Political leadership nowhere to be found.] Eventually, the Robinhood and Reddit crowd said, “Let’s tear all the tethers loose. Real economics haven’t meant diddly squat to this market for a long time now anyway, so let’s not even pretend to care about earnings, let alone sales and revenue or where the COVIDcrash is taking the world economically. Let’s bet this thing to the moon, regardless of the economic reality we are in.”[1]
And hats off to the Robinhood and Reddit crowd who played by the rules established by Wall Street and our vigilant watchdogs in the Securities and Exchange Commission (SEC) taking care that the United States investment world just could never come to resemble a Bahamanian casino.
Oh, I forgot. While you’re admiring the SEC, don’t forget how the Commerce Department and the State Department looked out for the interests of the American worker when corporate America did grievous damage to our industrial base. And how the Department of Homeland Security safeguarded our borders and sent all those millions of illegals back across the Mexican border. And how the anti-trust warriors in the Department of Justice went after our crippling domestic monopolies like leopard seals after a baby penguin (overheated rhetoric alert!). And how the FBI crucified the AntiFa and Blacks Liberating Merchandise filth burning, looting, and shooting their way across America last year. Plenty of interstate activity THERE, pilgrims! And how the Congress is just merciless when it comes to things like worthless spending projects and nation-killing debt. And how our Ginzu-knife Supreme Court jumped in on electoral theft that’s the envy of Zimbabwe.
God bless the American political class. Doing their utmost to stave off chaos, destruction, and the end of a truly grand experiment in self government.
Notes
[1] “DON’T-STOP GAME STOCKS: Bankrupt Companies As Trillion-Dollar Chips in the Wall Street Casino.” By David Haggith, ZeroHedge, 2/6/21.
Edit: “tricked-up earnings from fancy accounting” refers to earnings from “non-GAAP accounting measures.”
4 comments
Skip to comment form
I find the marker ‘corporate capitalization’ to be perversely humorous. N = big number X cost per share has nothing to do with the actual corporation. In the words of the sage, ‘That’s just your opinion, dude.’
Author
Quite so. The Fed drove down interest rates which had the not-incidental effect of lowering the debt service component of what is laughingly called the federal budget. Supposedly this would lead to enterprises and entrepreneurs taking out loans that they wouldn’t if they had a higher interest rate. The loan proceeds get spent which then benefits suppliers and other enterprises and, voila, there’s an increase in economic activity, though malinvestment also becomes be part of the equation.
More to the point, savers are punished by nothingburger returns on their money plus inflation so they head off into riskier investment in the stock market and all that money that was in savings thus puts upward pressure on stock prices. (P/E ratios become absurd.) Ditto for hard assets like gold and real estate. So I think the economists say there’s no price discovery and the stock market becomes just knee jerk churn.
I don’t mean to deliver any lecture here. I’m just repeating my mantra. Absolutely nothing about the nation is rooted in reality just now and it’s a rare public official that appears to understand that actions have consequences. I have a feeling the dollar’s status as the reserve currency has been a prime driver of our flight from reason. Fiscal and monetary lunacy could be offloaded on foreigners so it was Katy bar the door for pie in the sky government excess that most definitely included our absurd belligerence and meddling around the world that has cost hundreds of thousands of people their lives and caused unbelievable destruction.
American politicians today are probably best understood by certified addiction counselors and await only Reality’s imposition of a policy of tough love. A la Ben Franklin: Experience keeps a dear school but a fool will learn in no other.
It seems clear that the stock market is being supported by the Federal Reserve Bank, which means the price levels are probably stable, even if unrelated to the underlying corporation.
Author
I agree. The low interest rates are crucial to avoiding the impossible costs of debt service were interest rates “normal.” All this stimulus spending is pure panic on the part of Congress and the Fed. So I guess they’ll flog the moronic MMT theory until they can’t, which I assume means until inflation really takes off or (((shudder))) the world is able to break free of dollar dominance. Until then it will be steady as she goes.
Here’s a stray thought that goes to the deeper phenomenon of political pathology: industrial mass production not infrequently involves soul-killing repetitive work. Industrial farming makes farmers employees of a corporation. Anonymous urban life itself is atomizing and isolating. Enormous numbers of people live in massive cities where they have little community and zero political power. I once lived in Fairfax County in Northern Virginia. After some eight years in my corner of that county I ate dinner one Saturday in a restaurant that was something like 200 yards from my home. I looked around and was amazed to realize that I didn’t know a soul in the restaurant. Exactly the same thing was true of every other business or government office there. And I’m not an introverted guy.
It’s no wonder industrial workers and urban dwellers are susceptible to the demagoguery of the left and elect the blue sociopaths (and worse). Empty, unhappy lives have political consequences. And now the younger generation are saddled with enormous college debts, useless degrees in a nation with a diminished industrial base, and dismal prospects for decent employment, home ownership, marriage or family. They’ve gone for leftist trolls and lightweights when given the opportunity so that’s on them but it’s understandable when one realizes that they live in a luke warm soup of propaganda, lies, and unreason. With luck the posturing of the progressives and Klaus Schwab “predicters” will soon be revealed pursuant to the wisdom in the phrase “too clever by half.”
Too there’s the chilling truth in the saying “many are the ways of man but the will of the Lord will prevail.” One can only pray that that is true though I’m not a man of faith let it be said. This Lisa Dunham-Maxine Waters-Whoopi Goldberg-Nancy Pelosi-Sarah Jeong-Hillary Clinton-Jeffrey Epstein-James Comey-Obongo-Bill Ayers-Bernadine Dohrn-George Soros-Angela Merkel shift show has just GOT to stop.