Don’t fight the Fed, as the saying goes. The implication is that the central bank is firmly in control of the money supply: loosen it and stocks have nowhere to go but up. Betting on this outcome has been a big winner since the bull market took off in March 2009. However, all bull markets end, and so will this one. When it does — and there are reasons to think this has already occurred – the crackpot notion that we can borrow our way to lasting prosperity will die with it. The good news is that when capital becomes scarce in the hard times that accompany bear markets, our savings are much more likely to finance the growth of economically productive companies rather than merely increase the wealth of Wall Street hucksters.
This time around they have sold investors on the seductive idea that any company capable of exploiting a shift in the economic paradigm will make tons of money. What they have neglected to consider is that the new paradigm, as exemplified by Uber and Lyft, is so ruthlessly efficient that the hoped-for profits may never come. Instead, we get ride-hailing operators that are capable of deflating margins in a key economic sector to the vanishing point. Amazon is the biggest deflator of them all, with the potential to dominate in every area of retail, including groceries. They are hoping to vanquish #1 grocer Walmart, and I am predicting they will succeed. The reason is that Amazon’s state-of-the-art warehouses are better designed than Walmart stores to facilitate storage and delivery of food. However, the next phase of Amazon’s grand plan — jacking up prices — could fail in a recession. Regardless, the company is genetically programmed to lay waste to competitors and will continue on that track until most of them have been deflated out of existence.
‘See Spot run!’
A headline in Monday’s edition of The Wall Street Journal offered a glimpse of the endgame: Low-Inflation Trap That Ensnared Japan and Europe Worries Fed. To say the Fed is worried is giving the chimpanzees who are running it more credit than they deserve. Actually the ‘literary’ chimps, according to the myth, could eventually type Hamlet if you give them enough time. The banksters, on the other hand, have succeeded only in typing Fun With Dick and Jane. Flooding the financial system with hundreds of trillions of dollars worth of funny money is just a “See Spot run!” way to inflate assets. Far from worrying, the Fed governors will continue to fake answers as they go along, arrogantly pretending they can command and control the broad economic currents indefinitely. This implies that the quadrillion dollar derivatives market that the chimps have spawned is ultimately controllable. It is not, and when it begins to implode, the black hole of deflation this will create will be hundreds of orders of magnitude bigger than anything the banksters can throw at it. By then it will be clear that they never so much controlled the economy as surfed the tsunami they’d created.