The Frugal Prof

Its Not about the Money. Its about taking charge

The Politicization of the Stock Market

by

 

2008: We need $800M or the World is going to end

2020: We need $5.2T or the world is going to end

Value Investing

The inescapable lesson of 2008 is this: if the Federal Reserve can lower interest rates and re inflate the real estate market and stock market, then why wouldn’t you keep lowering interest rates to make the stock market go even higher?

This is what President Trump has gotten. And he is willing to take interest rates negative to keep this charade going.

The Federal Reserve is printing money and supporting the stock market, the real estate market, and the corporate bond market.

In July, the Fed bought up more bonds from blue-chip companies including Microsoft and Coca-Cola, while it added junk debt and made loans to a ski resort and casino in the Pocono Mountains. (CNBC)

 




 

Free Money from the Fed:

The US is awash in liquidity from the Treasury and the Federal Reserve.  As the election is now getting closer, there is chatter about more “free money.”  More stimulus checks.  Infrastructure plans.  More PPP.  And President Trump wants negative interest rates.

 

Negative Interest Rate Policy:  The Fed is flirting with Negative Interest Rate policy, a radical failed experiment everywhere it has been tried.

Japan’s stock market is flat for the last 30 years.  Their economy is irrelevant.  Their government owns their economy via ETF purchases.  Most international mutual funds and indexes do not even include Japan.  It is irrelevant.

For now, Powell is pushing back on the idea.  But his track record of bowing to the wishes of the President is pretty weak.

 

Relevant Articles:

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11 Legitimate Survey Sites for 2020

 

Sam Zell is Selling:

Sam Zell mentioned last month that he was quite cautious about the future.

“Too many people are anticipating a kind of V-like recovery,” said in an interview with Bloomberg Television.
“We’re all going to be permanently scarred by having lived through this.”
Just as the depression left behind a generation that couldn’t shake the experience of mass unemployment, hunger and desperation, the burdens this crisis has forced on society may be similarly hard to forget.
Zell, 78, said it won’t be easy for people to live as they did before the “extraordinary shock” of the pandemic.

Marc Lasry is cautious:

Billionaire investor Marc Lasry says the market isn’t pricing in a recession that will last ‘for a while’

“If you’re going to have all these people unemployed, it’s hard to end up coming out of a recession until that changes.
It’s going to be a difficult couple years,” Lasry said, adding “I just don’t see people that are out of work spending money.” More here

The stock market is now above 150% of GDP.

Does creating a new stock market bubble actually help the real economy? The real economy is businesses, bars, and restaurants that are going bankrupt. How does creating a new generation of stock speculators help anyone?

 

 

CNBC:  Young investors pile into stocks, seeing ‘generational-buying moment’ instead of risk

The major online brokers — Charles Schwab, TD Ameritrade, Etrade and Robinhood — saw new accounts grow as much as 170% in the first quarter, when stocks experienced the fastest bear market and the worst first quarter in history.

 

‘Monumental volumes’

The major online brokers saw a major jump in new users during the coronavirus sell-off, bolstered by zero commissions and fractional trades.

Charles Schwab CEO Walt Bettinger said in an earnings release the broker saw “monumental volumes” of trading from the 609,000 new broker accounts added in the first quarter, with over 280,000 in March alone.

The quarter included 27 of the 30 highest volume days in Schwab’s history.

Well it does help President Trump.  For now.

 




 

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Comments

  1. Setarcos says

    Some great content. And yes Trump does want the music to keep playing. HOWEVER, this has been a work in process for decades and Trump is relatively new on the scene. If we want to find the real scapegoats, there are many to choose from and a long time period to examine. For example, US tax policy incentivizing the dismantling of US industry while off-shoring for cheap labor. Why does that tax policy still persist? And the role the FED has played gets very little attention. Focusing on deeper analysis into root causes would contribute to understanding. So many focus on Trump which diminishes their credibility and reveals their laziness.

  2. James Boblooch says

    Have no idea how much gold is held at Fort Knox and other locations. They wouldn’t dare use any of it to clean up there screw up. But I’m sure it would help.
    Sadly we are in serious trouble. New Zealand is sounding better everyday.