The equities market has continued to be spoon fed massive inflows from Government(s) to counter the massive outflows due to rising rates. This continues unabated because it has been wildly successful. But it is not sustainable, regardless of our new Administration’s efforts to boost economy and cut Government.
We now appear to be at the beginning of the end of our fake economy, so I felt it was time for a situation report.
by Lionel Garcia de Malones
Welcome to the wheels coming off Western Governments (and our) debt nightmare.
If you do invest in stocks you should at least know why the Stock Market is a tad overpriced and may want to plan accordingly.
Since 2008, the stock market has been ramped up by two main factions: (1) The Fed and other Central Banks (Quantitative Easing) and (2) Corporate Boardrooms (The Buyback). In other words, the market goes up not because of objective economic factors or corporate quality but because of Government actions that lower interest rates (by lying about inflation which dilutes sales and earnings with declining dollars ) and illegal buybacks that push prices up artificially. This may also include direct stock purchases by the Federal Reserve, a moral hazard and possibly against the Fed charter.
When the fan finally gets whacked no stop-loss program will help you as you are just the “little guy” who will get as slaughtered as the Shoe Cobblers who became investment advisors in 1929.
Stocks have gone up with the new FED policy supporting the Rich 401-Kers (Investors) over the Not Rich Working Classes (Savers) by forcing people to invest their meager nest eggs in the stock market because alternatives were taken off the table with near negative interest rates. Even though you have savings that you want to protect, you don’t want to earn nearly nothing. So, most Americans that could chose to buy stocks, or bonds that are even more inflated because of the near zero interest policy of the Fed over the last 16 years. But as we shall see, that has changed and many have already left the market.
Stocks have gone up, a lot, coincidentally well over the Govt declared rate of inflation (14% S&P 500 annual return 2009-2022).
Continuing to play in the Ponzi game where there is no underlying economic reality can be deadly, you just don’t know when it explodes. Even if you do make money in the market, I suggest it is immoral to do so on the backs of future generations that essentially pay for your gains when they must pay off the costs of QE in higher interest rates to curb QE caused inflation. Who do you think will be paying for all that QE money going into stocks and government debt to assure further debt? Our kids, and theirs. Not to mention the inflation costs that those least able to afford pay the most as a % of their disposable assets. Is that immoral? You be the judge.
The Cost of Our Happiness. Future generations will be on the hook for $360,000 per capita and $930,000 per household for our Government’s vote buying debt and the unfunded liabilities related to Social Security, Medicare, Government pensions and the like. And since half of America have nothing in the bank and can sometimes afford to pay for a McDonalds dinner without a credit card, that means the actual debt on people with the ability to pay (i.e. taxpayers) may soon approach $1,000,000 per person. Goodbye retirement plan.
Stocks and corporate bonds may get you a decent dividend or yield (now at a high risk vs CDs/Money Market Funds) but even then you are well below actual inflation in our economy. The inflation that is not reported. They do not want you to know this.
From Management Study Guide on Inflation:
The goal of the central banks is to keep inflation at a bare minimum. However, the policy of quantitative easing does the exact opposite. Since this policy creates money and uses this money to further amplify lending by using this money as reserves, it is inherently inflationary.
Investopedia
The Con. To get around this little dilemma, the powers that be devised a scheme that depends on false measures, propaganda and mass psychosis to convince us that our living costs have risen slowly (also justifying low wage and Social Security demands) because inflation barely existed, but this was economically impossible. In the jargon of the day, this is called a Psyop.
But, why doesn’t the government just tell the truth on Inflation? They have no choice. They must lie. Why did they do this?
The Government and Central Bankers have hidden inflation for a very long time because of their actions to boost stocks, bonds and real estate (the basis of American wealth) without the Government they serve having to pay the bill of inflation via higher interest rates to keep the Government functioning – at the size it is.
The cost of living has been going up so rapidly in the last 20 years that half of America with two wage earners have virtually no savings in the bank. Part of the problem are medical and higher education costs that have had an inordinate impact on savings, along with no interest until recently on said savings.
If the real cost of living was even remotely close to the levels reported by the Government with a contrived CPI, our retail revolving credit debt would not have climbed 40% in 5 years to $1.4T in order to may ends meet with multiple jobs. Total consumer credit has increased nearly $1T just since 2019, before the massive Covid related QE money supply programs took hold. When incomes (if you even had income) can’t keep up with the real cost of living, life goes on the card.
If inflation was actually as reported, half of America would not be living with savings accounts having less than 2 weeks emergency backup pay. They also wouldn’t be fearing a health crises that could put their family into bankruptcy because of medical costs that have gone up at twice the rate of reported inflation. To make ends meet, they put their living expenses “on the card”. Just like the Uniparty Congress.
Inflation Update. Real inflation, likely in the neighborhood of 12-15% annually vs the 2-4% “official” rate, cannot be reported because interest rates would have to rise much, much higher than we have seen this year to combat the ever declining power of the dollar as world currency.
Here is actual inflation (less the cost of rising taxes) as calculated before changes were made to make inflation artificially low to support QE wealth distribution programs and the permanent printing of our unbacked fiat currency:
The results of all this are many, which is the US Government does not want to report real inflation. If they told the truth, and the Fed Funds rate just went to half of what we had in 1980 to fight similar inflation, we would be in big trouble. In fact, we have moved to the mean Fed Funds rate over the last 20 years (4.5%). But this is not anywhere close to the rates needed to kill the inflation monster.
In June 1981, the Fed Funds Rate was at 19.1%. That was needed to squeeze out inflation of nearly 14%.
Our Big Problem. In order to kill inflation, we need significantly higher interest rates than even where we are at now. But that will not happen as long as the low inflation Psyop is successful.
And to help this fakery along in a fools game, they will continue to redesign our cost of living inflation algorithm as needed, until the inflation lie can no longer be told and the possibility of hyperinflation begins (defined as more than 50% increase in prices/month), if we calculate the number correctly.
America has never had hyperinflation which is a reason why hardly any economist believes its possible. But I would have them look at the monetary injections that have also never occurred.
Still, they do all of these things because the Uber rich not only likes their fully owned assets inflating up but can easily absorb 10-20% real inflation rates. Let ’em eat cake.
This is the kind of stuff that eventually leads to really bad things. Like market crashes and worse, if nothing changes, revolts ala 1789 and 1917.
Therefore, the Inflation Lie Continues
We can no longer simply print money to payoff domestic (80%) and foreign debt holders (20%) of our $36 Trillion debt ($28 Trillion debt when this article was first written in Dec 2020).
If inflation was truthfully told interest rates would rise rapidly and very bad things will happen:
- Government Collapse (can no longer viably finance $36T when paying normalized rates to lenders).
- Stock Market Collapse (no reason to buy insanely priced stocks, keep reading)
- Real Estate Collapse (can’t qualify to buy median price home when payments shoot up by half)
I won’t go into the overriding politics of government collapse, which is self explanatory. Let’s talk about stocks.
As rates rise, as we have seen, people bail on stocks because the reason they bought stocks in the first place (no interest on savings), even in times of Recession heading to total collapse as we have today, would simply cease to exist. Are stocks too high now? Emphatically yes.
Stock Valuations. As of 1/20/25 TESLA is valued at an astronomical $1.37T. That puts Elon Musk in the Top 7 AI Tech club that is worth 30% of the entire stock market (S&P 500) (1). That also makes him the world’s richest man.
But, how should we value the market generally? Well, you can be a rosy Motley Fool guy who said just before the Dot.com bust that conventional valuation methods no longer apply because we are entering a “new paradigm” of value.
The Motley Fool Stock Valuation System at the time was a simple momentum play: Buy stocks that are going up. That is not so bad for short term day traders but these guys meant buy AND HOLD, which turned out to be horrific investment advice and some of their followers went bankrupt. The Motley Foolers had lived up to their name.
American people are largely ignorant and when combined with amnesia can be deadly for the rest of us.
Situation Report for the Shoe Cobblers
P/E (Price/Earnings) Ratios. It used to be that the widely recommended trailing P/E ratio was a good tool for buying stocks. Then, almost all of the investment bankers and brokers decided to change the game by valuing on FORWARD P/E ratios. This is just a magic trick.
So, the best measure is a trailing P/E which is based on actual as reported earnings, not some broker’s pie in the sky estimate that may or may not happen. And everything is always rosy to someone on commission.
The Case Schiller Trailing P/E ratio is a reasonably good measure of stock market valuation overall because it uses a 10 year Trailing P/E ratio, adjusted for inflation. This takes out the big bumps in the road. If you look at the Case Shiller S&P 500 P/E now, I think you can say it is a bit alarming:
As of Jan 21, 2025 the current S&P P/E ratio is 38.47. This means that the stock price valuation of the S&P 500 is 38X the 10 Year trailing inflation adjusted earnings. Stocks are currently priced at more than twice as high as the historical median, in the face of inflation and recession (stagflation), yet I hear people that were educated in College with MBAs in Economics or Sociology on Seeking Alpha say “It’s only up from here!” That’s exactly what they said before the most insanely priced stock market in US History crashed into oblivion – the 2000 Dot.com “Tech Bubble”.
Even more alarming is that if we were to use a 5 year trailing P/E it would be even higher because the earnings reductions in 2020 when Covid hit would have more impact over a 5 year period than a 10 year period. Not to mention earnings are actually much less than even what Case Schiller figures because inflation was massively underreported during the last 10 years. If inflation was artificially lowered by 50%, the PE ratios would be stratospheric.
Everyone out of the Pool
According to the WSJ, a wave of unheard of stock selling started about the time rates began to rise in 2020. It is estimated that $4 Trillion left the market just since 2020 and this is not abating. As of 3rd Qtr 2024, there is an amazing $10.24 Trillion sitting it Money Market Funds and CDs, up from $6.3 Trillion in 2020. Why didn’t the market crash naturally as it should have? And why in any world of reality would this happen instead?
If you invested $100 in the S&P 500 at the beginning of 2024, you would have about $126.84 at the end of 2024, assuming you reinvested all dividends. This is a return on investment of 26.84%, or 33.01% per year.
officialdata.org
The Lifeguard for the Elites – The Federal Reserve Bank
Question: How can the US Stock Market be at record highs with the biggest outflows in US history in real and percentage terms since the Fed began raising rates in 2022 from near zero?
The only possible answer is that the Fed has been “buying” the stock market that otherwise would have collapsed on its own, yielding the economic corrections to Big Government we should have had years ago. They can do this directly through member Bank purchases (e.g. JP Morgan has over $100 Billion in equities in their own account as of 12/31/23) of stocks and indexes with QE monopoly money deposited to them that are awaiting some form of distribution via US Treasury bond purchases or business loans which largely failed to materialize.
With these historical outflows, stock prices have barely slowed for a drink of water and are much higher now than October 1929, Black Tuesday on the chart above. I submit this as indirect PROOF of the Fed buying stocks directly with QE money, likely against their Congressional Charter (Sec. 14) (4). It could happen no other way to keep stocks in record territory during massive Covid/AI induced unemployment, a global recession, 10-20% excess mortality worldwide due to the mRNA programs, a near Civil War with 2 confirmed assassination attempts against a Presidential Candidate. Not to mention the still festering prospect of WW3 beginning in either Eastern Europe or Middle East.
The pattern is as clear as Election Fraud – when the market suddenly dips on huge volume, it is suddenly bought on huge volume.
Techno Titans
We have blasted right past Black Tuesday prices, the beginning of the Great Depression. Going back to the beginning of the 20th century, the only time the market was priced higher than today was during the first Techno Titan Dot.Com bubble in 1999/2000.
Then reality finally hit in early 2000 and even non Tech stocks went down 50% or more. Many Tech stocks lost 70% or more in value, most of the purely internet companies went bankrupt.
Back in those days, there was an altogether new future that many could see, and that actually did occur as we are witnessing the Big Tech effect today – the Internet. As we move into 2025, we have the highest trailing P/E ratio in US History (ex Dot.com) and don’t even have the justification of a rosy transformative future to justify the market.
Today’s economic future includes permanent AI job destruction of at least 60%. Small business (the backbone of America) is dying at the highest rate in my lifetime. They were left behind the Big Guys and have barely gained anything in 4 years. And the S&P 500 reached all-time highs in 2024/2025 while bankruptcies have exploded past even the Covid bioweapon outbreak levels.
An Illegal Economy?
Now that interest rates have moved up, cash has moved out of the stock market. It’s continuing to move into CDs and money market accounts paying normalized rates, which is finally something good for your Grandma.
With the biggest outflows in stock market history over the last 2 years, how the market has not crashed yet and stayed in the stratosphere is a question for the ages. As noted, this can only happen from the results of direct stock market purchases by the Fed, obscenely low rates (still) relative to actual inflation, buybacks and foreign investments. Please note that none of these factors have anything to do with economic prospects on macro or micro levels. You can read about the price manipulation buyback game in Part 2.
Counter Argument
The contrarian argument to the above is pretty simple. As long as the Fed keeps rates low relative to inflation – which it is even now – and prints money that finds its way into the market, you can’t go wrong. There will always be a quick and rapid rebound from any selloff. But this Ponzi game of chance will end when inflation takes hold so hard that it can no longer be hidden and interest rates go up to the Volcker levels in the 1980s to placate the “revolting” masses who won’t be able to afford food. Then, none of us in the market will be able to catch the falling knife greased with lies about inflation and the bubbling economy. The market can easily collapse all at once by 60-80%.
Investing in the current equities market is also immoral by putting our temporary stock market gains on the backs of future generations through higher government debt/tax burdens and much higher inflation that they cannot afford without themselves going into more debt.
As DOGE has discovered, everything economic in America is largely a lie when Government spends to support the State, not the People and the economy that pays for the State.
The Final Showdown – Real Inflation vs QE/Fed.
Nobody can say when the financial collapse will happen, but time is running out for our spiked financial system.
When you start to see that the inflation lid can no longer be kept closed with fake Government Inflation reports and rates begin to rise slowly, and then more rapidly to combat what will become hyperinflation, if you aren’t already out of the stock market it will be too late.
Then it’s all moot when a loaf of bread is $100 and you can just light your Cigars with our old near worthless currency.
Unless we get rid of the Federal Reserve Banking system controlled by Global elites, we will never have a stock market valued by the natural laws of supply and demand. And, we will just have to be happy owning nothing but our on/off virtual money and renting our walk-in closet size flats in a 15 minute city? This is what happens when he who has he Gold makes the Rules.
But, maybe they don’t have the Gold?
(1) Trump wants to invest even more in AI/Big Tech to continue the biggest wealth and jobs transfer in human history from the poor to rich. That’s another story for another day.
(2) Author is no stock advisor as he shorted TSLA before Musk found a fake buyer but predicts market collapse in 2025, possibly by 2nd quarter. He is now fully invested in Tulips and Bitcoin, which is worth it’s weight in Gold.
(3) The result of this unheard of wealth transfer to Tech is that the top 7 companies in the S&P 500 now have nearly 30% of the entire market value of the 500.
(4) Section 14 describes things the Fed can purchase directly, like US bonds. The purchase of equities is not mentioned specifically and has historically been excluded by omission as a Fed Action but the restriction is not explicitly stated in either Federal Charter or Federal Reserve Act (Chatbot could not answer), only by omission are stocks “excluded“.
Sic Semper Tyrannis
