Saturday, May 9, 2015

MARKETS SURGING, AGAIN ... WHY YOU SHOULDN'T CARE, AND PERHAPS EVEN BE A LITTLE WORRIED

Over the past 5 years the New York Stock Exchange has surged upwards by 61 percent. Yesterday - May 8, 2015 - the NYSE closed near 12,000, with the DJIA closing at over 18,000.


Should we be jumping for joy? No. The graphs below - which I discussed 2 years ago - will help you understand why.

THE BAILOUT IN PERPETUITY PAYS OFF
So everyone knows that the economy and stock market was in a death spiral at the beginning of 2009, right? Then Congress and the Federal Reserve came to the rescue and pumped trillions back into the economy with bailout cash and other "legacy asset" guarantees for market players.

Check out what pumping trillions of dollars into the economy - with TARP, the stimulus, and regular (FOMC) money dumps - did for the S&P 500 from 2009 through 2013 ...



What we learn here is that after more than 1,230 days of market interventions through 2013 by Congress and the Federal Reserve (what market players like to call "quantitative easing") the S&P 500 soared to record highs, again.

Now that's the magic of the market at work for you [wink, wink] ...

Anyways, staying with our narrative, we know that pumping up Wall Street began long before the 2008 market collapse. In fact, ever since Alan Greenspan became chair of the Federal Reserve in 1987 - and came to the rescue of LTCM - the Federal Reserve has propped up the market players on Wall Street on a regular basis. We even have a name for using the resources of the Federal Reserve to backstop and support Wall Street every time it gets a headache: The Greenspan Put.

And it's done wonders over the past 30 years to bloat profits and help insulate Wall Street from their own recklessness and stupidity. Check out what's been happening with the Dow Jones Industrial Average since Alan Greenspan hit the scene ...


Again, the Dow Jones Industrial Average is well over 18,000 today, which is 4,000 points above where it was just two years ago.

So, yeah, in just 25-plus years since the arrival of Alan Greenspan the DJIA has gone from hovering around 2,000 in the late 1980s to over 18,000 today. With government bailouts and the Greenspan Put pumping guaranteed money into the economy a monkey picking stocks with darts could have made cash in our market over the past 25 years.

Again, that's the magic of the market at work for you ...

AGAIN, IT'S THE MONEY DUMPS
But this isn't the end of the story. After making so much (cheap) money available to corporate America and the financial sector the Federal Reserve has watched over a system that has seen the size of our money (dollar) supply grow like the Octomom after fertility treatments. Check it out ...



In real simple terms M-1 (blue line) represents the amount of money Main Street (you and me) has in its collective pockets and checking accounts. By 2010 this was about $1.8 trillion.

M-3 (green line) represents the amount of money Wall Street and corporate America's biggest financial players have to spend, or have a claim on. By 2006 this amounted to roughly $10.29 trillion (over the past 9 years M-3 has hovered between $13 trillion to $15 trillion).

Here's what the increase in the money supply looks like since the Fed really started pumping money into the system immediately after the 2008 market collapse ...



THE RESULT ...
So, just what has all of these Fed-led market interventions meant for corporate America? Pretty simple. Record profits (blue line).




The unsettling part here is that profits are both concentrated in the hands of a smaller and smaller group of people, and are growing at a rate that far outpaces what we produce (GDP) every year (a development Peter Drucker discussed more than 25 years ago when he explained how the real economy was increasingly separating or decoupled from the symbolic economy).

At the end of the day, after dumping trillions of dollars into the economy, the "market success" we're seeing on Wall Street is really nothing to get excited about ... that is, unless you're one of the market players reaping the financial benefits of America's money dumps on to Wall Street.

Unfortunately, the bailout driven gravy train has to end. It always does. Which is why we should all be a bit worried.

- Mark

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