The Phony Boom in Stocks

The Wall Street Journal reports that the rally in stocks is turning into a real bull market.

Why? Because there’s so much money around.

There’s a ‘superabundance of capital’ in the world, says Bain & Co. It’s in banks, investment funds, corporate treasuries – everywhere, except where it is needed. Households are tight. But the financial and business sectors are flush.

Bain said that the world will be ‘awash in capital’ until 2020, when financial assets are expected to be ten times the size of the world economy, $900trn compared to a world GDP of $90trn.

Whee!

Who do we thank for all this money, money, money? Central banks!

The US has a QE Forever programme. Japan has announced it will do whatever it takes to get its own markets pumped up. Mario Draghi, head of the European Central Bank, said last week that he will do more to provide liquidity to Europe; the euro sold-off on the news.

And Britain’s central bank has a new head – a Canadian – who is scheduled to make a policy statement this week. Odds are, he’ll join the crowd – proposing easier money policies. As head of the Bank of Canada he presided over a system with even more debt than the US. While private debt to disposable incomes has come down in the US, it continues to go up in hockey country.

Today, debt to disposable income is at 108% in the US, after peaking out at 130% in ’07. In Canada, the ratio is 166%.

So what happens to all this new cash and credit?

Well, somebody is putting up $24bn to take Dell private. Virgin Media got a bid for $23bn. And the US stock market is near an all-time high.

Big time investors are buying thousands of single family homes – for cash.

Apple has $137bn of cash…David Einhorn is trying to get it to share with stockholders. And oh yes…US corporations have about $5trn in cash, including some $2trn said to be overseas.

But there are many who still want the feds to do more. Professor Justin Wolfers:

‘By their own framework, they’re not doing enough.’

But it’s their own framework we’re worried about. It’s bent. Twisted. Corrupt even.

Let’s see, what is really going on? What kind of game are central bankers playing?

Central banks give their friends and favourites access to almost unlimited amounts of money at nearly zero rate of interest. What do they do with the money? They buy valuable assets – houses, office buildings, companies, gold and silver.

Ordinary households aren’t getting the money; it’s locked up in the hands of the 1%… or even the one tenth of 1%. And there aren’t enough of these rich insiders to move consumer markets. Toilet paper and gasoline move up slowly. But prices for stocks, bonds, Manhattan real estate and expensive works of art go up fast.

Meanwhile, home ownership, by the people who live in them, is going down.

Stock ownership, by the middle class, is also on the decline.

Powerful, well-financed groups are buying. Middle America – short of funds – is not.

The elegance of this scam is breathtaking. Central banks print money to ‘stimulate the economy’. It doesn’t stimulate the real economy. It just makes it look as though there is real growth. Asset prices go up… just as they would in a real boom.

But in a real boom, most people would become wealthier and better off. In a phoney boom, only a few become wealthier. A phoney boom does not create wealth, it just transfers existing wealth. Central bankers give new money to their friends. The friends use it to capture a larger share of the real wealth in the nation.

Regards,

Bill Bonner
for Markets and Money

From the Archives…

Money in the Time of Financial Cholera
8-02-13 – Satyajit Das

Dishonest Leaders and Delusional Voters
7-02-13 – Bill Bonner

Uranium: The Commodity Like Gold Ten Years Ago
6-02-13 – Byron King

How Australia-China Relations Are Caught in the Monetary Battle Space
5-02-13 – Dan Denning

The Great Rotation Into Stocks
4-02-13 – Dan Denning

Download Your FREE Report:

The Aussie Recession Survival Guide: how to protect your wealth in a fast-shrining economy
Markets & Money Free ReportIn this urgent investor report, Markets and Money editor Vern Gowdie shows you why Australia is poised to fall into its first ‘official’ recession in 25 years…

You’ll learn:

  • What Central Bank Rate-Slashers Don’t Want You to Know: Has the Reserve Bank’s rate-slashing obsession really helped stimulate the Australian economy? Or has the incredible amount of ‘cheap money’ up for grabs simply dug a deeper economic hole? You’ll find out in Vern’s report…
  • Revealed: Australia’s 25 Year ‘Bulletproof Economy’ Fraud: Politicians have long talked up Australia’s apparent economic strength. You’ve been told we haven’t seen negative growth since 1991. But is Australia’s 25-year economic ‘golden run’ true? Has our economy really grown non-stop for a quarter century? You’ll be shocked by Vern’s findings…
  • Australian Government’s $1 Trillion ‘Black Hole’: The Aussie government ‘borrowing spree’ pushed foreign debt up $2 trillion in the last 15 years. Net debt (the money we owe foreign countries) stands at $1 trillion. What does this debt ‘black hole’ mean for the economy, your livelihood and the future of your family? Vern paints a bleak picture…

To download your free report ‘The Aussie Recession Survival Guide: How to protect your wealth in a fast-shrinking economy’ simply subscribe to Markets and Money for FREE today. Enter your email in the box below and click ‘Send My Free Report’.

We will collect and handle your personal information in accordance with our Privacy Policy.

You can cancel your subscription at any time.

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and MoneyDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

To have Bill's reckonings delivered straight to your inbox subscribe to Markets and Money for free here.

Read more

Bill Bonner

Latest posts by Bill Bonner (see all)

Leave a Reply

3 Comments on "The Phony Boom in Stocks"

Notify of
avatar
Sort by:   newest | oldest | most voted
small cap
Guest

My god, who shot JFK?

SG
Guest

Some people make silly comments and tell themselves silly things so that they don’t have to think. Life is much simpler and your days less disturbed when you can adopt outher people thoughts as your own.

Lachlan
Guest

“The friends use it to capture a larger share of the real wealth in the nation”
Yes they do….and we are inevitably victims of this to a variable extent.
Still, every day the sun rises we may quit being total victims and start being worthy adversaries.

wpDiscuz
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@marketsandmoney.com.au