This is part 3 of a 4 part series. The other posts can be found here:
- Part 1 - The Big Debt Cycle
- Part 2 - Central Banks are Failing Us
- Part 3 - The Market is Rigged
- Part 4 - Scarcity in a World of Unlimited Money Printing
The Market is Rigged
STONKS only go up!
The game is rigged, and people are starting to realize it.
The market is at all time highs.
Even though the economy is at all time lows.
Source: Twitter - Bianco Research
The Buffet indicator of market valuation is flying off the chart.
Any guesses why?
Source: Twitter - Preston Pysh
The US gov’t cannot afford for the market to go down.
Source: Tree Rings - Luke Gromen
The Fed will do everything it can to support the market.
Source: Bloomberg - John Authers
Even Pelosi admitted it
Source: Nancy Pelosi Interview w/CNN 7/21/2020
Why is that? Because the stock market is responsible for a huge % of GDP growth. It effectively has become the economy.
Source: Tree Rings - Luke Gromen
Also because of the looming retirement crisis.
Nearly all baby boomers are retiring this decade, and they don’t have enough saved up.
Source: Real Vision
Bond yields are not enough to sustain their retirement plans, so they have bet the farm on equities.
Source: Real Vision
“The real driver of net worth, has been the equity market… and is the only driver going forward. This means people have doubled up their bets, and tripled up their bets. They have this bet directly in equities, and in their pension plans.
The pension plans themselves have a record holding of equities vs fixed income. They also have record risk… risk seeking investments…because nobody can fund their retirements.
It’s the same story at the government level…defined benefit pension level…and same story at household and 401Ks.
Nobody has enough money to fund retirements, so everybody is taking the maximum risks.”
-Real Vision - Raoul Pal
Source: Bloomberg
“Nobody has owned this many equities, or equity like instruments, risk seeking instruments, ever before. When the valuations have been so high. That is a dangerous setup.”
-Real Vision - Raoul Pal
Source: Real Vision (Annotated by me)
“All of the life savings that are in equities, which is basically 70% of the entire household balance sheet, is going to get wiped out in one recession. And they won’t be able to buy back, because they won’t have an income to buy back. This is the biggest problem I can see today.”
-Real Vision - Raoul Paul
This explains why markets have to keep going up.
Source: Yahoo - S&P 500 chart
But are they really going up?
Source: Twitter - Lyn Alden
Same S&P 500 chart, but priced in terms of Bitcoin.
Source: Twitter - Preston Pysh
Stocks went up in Venezuela…
Source: Twitter - PlanB
And in Zimbabwe too…
Source: Twitter
When their currency crashed.
Source: International Monetary Fund imf.org (annotated by me)
Our currency is failing, and countries are starting to take action.
China, our biggest creditor, has been cutting usage of dollars for trade, and investing their USD’s around the world (rather than buying Treasuries).
Source: Tree Rings - Luke Gromen
Source: Tree Rings - Luke Gromen
They are trying to get away from dollar dependence.
Source: FT
Source: Bloomberg
Source: Bloomberg, Interview with Ray Dalio
Is the USD’s status of global reserve currency at risk?
Source: Reuters
Source: FT
Probably not going to happen over night.
Source: FT
And maybe not at all. The Dollar may even get stronger as other central banks print.
It’s a race to the bottom.
Source: Katusa Research
Source: Katusa Research
But a super strong dollar means havoc in the US Treasuries market, furthering a flight to USD.
Forcing the Fed to print even more.
Source: Tree Rings - Luke Gromen
Strong dollar against other currencies is one measure. But how about against gold?
This goes back to the increased money supply issue.
Central banks around the world have been buying more gold.
Source: https://centralbankgold.org/2020-survey
Since 2009… coincidence?
Reserve currency status is typically the last thing to go in a declining empire.
Source: The Changing World Order - Ray Dalio
But when it goes…
Source: The Changing World Order - Ray Dalio
“History teaches us that they typically turn to gold, other currencies, assets in other countries not having these problems, and stocks that retain their real value.”
-Ray Dalio
Source: The Changing World Order - Ray Dalio
I have no idea how it’s all going to play out, but this is the current macro backdrop we’re in.
Can you see where I’m going with this?
Continue Reading…