- All told, I believe that we're quickly moving towards stagflation, the distant cousin of"screwflation."
You can find plenty of articles to the contrary, but this is close to my view atm.
Basically, the Fed has done everything that can with near-zero interest rates and QE to stimulate economic activity, but their monetary policy efforts have created incentives (like companies issuing bonds and using the money to buy back stock and issue dividends) which artificially have inflated the market, and the Feds efforts have diminishing returns over time. Unless the government steps in with fiscal stimulus (like tax breaks or spending on infrastructure, etc.) then the market is out of fuel. Kass sees this unlikely in an election year. Monetary policy can only do so much, and it makes for asset bubbles, like the one Kass sees in the stock market. So Kass is shorting the market. He says that if that is too aggressive for you, then consider putting your money in cash, and waiting for this reckoning to play out.
I would say all of the above. No doubt investment banking and the creation of new instruments increased the stakes, but not borrowing money for fiscal stimulus when it was super cheap was colossally stupid on the part of the U.S. legislature. If our government was partially functional, they would have borrowed money at very low rates for tax breaks and infrastructure spending and gone home to their constituents and play up the one that was part of their respective easy-to-chew platform.
Hmm. So we lost the opportunity to fix our roads and bridges and help single mothers on the cheap, huh? That's a shame. Not that I play the investment game, but I take it there are laws the keep people in America from investing in foreign markets? Say for example, if some company in South America or Asia is looking very healthy, we as Americans wouldn't be able to take advantage of their situation? What about banks and investment companies? Can they do that?
The policy thinking on this was that the banking system had to be preserved at all costs because it wasn't the collapse of the stock market that caused the Great Depression, it was the inability and unwillingness of banks to lend money. Saint Friedman, who the Republicans worship the way the libtards worship Ayn Rand, argued that FDR actually prolonged the great depression by spending money on the New Deal instead of giving it to rich people to hoard. Infrastructure projects take a lot of time and don't inject cash as quickly as other moves. This is why the Obama administration showered America with money via Cash for Clunkers. TARP was theoretically supposed to help single mothers and Americans threatened with loss of their home, but it was so badly documented and enforced that it mostly went to mortgage holders in good stead. Like me. TARP saved my ass about $70k and we haven't missed a payment since the wife bought the house in 2000.
Hmm. But I've read, I think even on here, that part of the reason why we're still in an economic slump is because Americans are burdened by debt, reducing their buying power, and slowing down the economy. If banks handing out loans exacerbates debt, and tax cuts and investing in work programs creates wealth, shouldn't that be the better way to go?
Millenials are burdened by debt. That's very different from "Americans." Lo and behold: consumers, when given a chance, act like corporations. "Debt" is actually "leverage" and economists love it (welcome to bizarro-world). If I owe you and you owe me we have reason to continue to do business together as we both gain from it. The economic slump is probably due to the fact that things would have been downright humungus-eating-dogfood apocalyptic if world governments hadn't dumped preposterous amounts of cash on the investment class, thereby preserving their positions at the top of the heap. It could be argued that our current slump is because we have a socialist financial system propping up our capitalist financial system and the supports are so essential that the capitalist overlay simply doesn't have the strength to stand up on its own two feet. But you won't hear Jim Cramer say that.
No, you can invest overseas. Companies and people do it all the time. With ETFs, you don't even have to buy shares on their exchanges, you can have someone do it for you, although with varying costs and degrees of exposure. For example, I am shorting Brazil. I have a hard time calling any of it investing though, especially derivatives. I guess you can invest in a gambling strategy.
The argument of the article is basically "our bull market can't continue" without noticing that "our bull market" has been flat since 2014. The argument is basically that because money has cost essentially nothing to lend or borrow, making money by lending money has become impossible and the risk of borrowing money has dropped to nothing therefore something something ball of flame. The Sandy Coufax jibe is a clumsy swipe at "quantitative easing" which is "the government shoves piles of money into the banking system to make it easier for people to lend and borrow" because Ben Bernanke wanted to stave off another Great Depression so badly that he brought up Milton Friedman's "helicopter drop" of cash thus earning him awesome cartoons like this: Thing is, 70% of the world's money is currently under negative interest rate policy. Japan, Germany, France, Switzerland, all are charging banks money for lending it out and we still don't have the bottom in sight. It's also assuming that at some point the Fed will go "whelp, that didn't work, back to business as usual!" and raise interest rates and crush the economy because something something reasons. The bottom line is this, though: the Fed has made cash far more available than ever before in an attempt to get companies to invest and spend and do economics-ey things. What they've done instead is buy back their own shares. This is corporations effectively inflating their own stock price which is a whole 'nuther discussion, but one in which it does make sense to be skeptical of investment possibilities. My beef is that the time to go to cash was a couple years ago, there have been no real signals that now is a better time than later, and if you're going to cash, you're giving up on dividends which are actually pretty goddamn healthy right now. I'm pretty much in cash and long-term dividend-bearing government ETFs right now, but I'm not expecting to stay there for the rest of the year.
Share buybacks have actually done something a lot worse than just inflate stock price. All these buybacks have loaded company balance sheets with short/med term bonds. These are benign right now but as soon as interest rate environments tighten they are at a risk runaway debt cost explosion. Here is a quick explanation of how it can happen: Lets say you started Pozi Coffee Co 20 years ago selling hipsters Folgers repackaged into a fancy "green" containers. You made a sizable profit and could reasonably afford to service 1Mil in debt at 8% interest back in 96 you also have outstanding shares. Now a couple years later interest rates are down to 4% so now you can now service 2 million in debt. You buy back a bunch of your shares for that extra million. You aren't any more profitable but you can afford to carry a bunch more capital costs and pay yourself a nice bonus. Repeat this again at 2% you can now carry 4 mil and buy back another 2mil while still making the same profit. At this point you are basically dead as soon as interest rates go up, but you can continue as long as rates stay the same or keep going down. You can theoretically offer to issue more stock but who will want to buy stock from a company that that needs to issue to prevent default so the buyback process is a 1 way street. If there is only one ponzi coffee co in the world that's not really an issue there is enough robustness in the system to absorb it. But what if there are hundreds, thousands of them? Large companies such as GE, Chrysler, IBM, HP? Can the fed really risk blowing them up but removing liquidity? Thats why where in such a conundrum and the FED has no idea what to do next. They must unwind these low interest rates since its bankrupting pension, and insurance companies but doing so will blow too many large systematically important players. There is not enough capacity to absorb that much debt implosion. Hence the bull market cant continue but the bull market must continue. If you think that cash is then short term government bonds is probably the smarter play. The game of how low can you go apparently can go below zero so there is potential to "profit" even from a 0% bond.
What they've done instead is buy back their own shares. This is corporations effectively inflating their own stock price which is a whole 'nuther discussion, but one in which it does make sense to be skeptical of investment possibilities. So this whole tactic has allowed companies to lie about their real world value?The argument of the article is basically "our bull market can't continue" without noticing that "our bull market" has been flat since 2014. The argument is basically that because money has cost essentially nothing to lend or borrow, making money by lending money has become impossible and the risk of borrowing money has dropped to nothing therefore something something ball of flame.