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The system is rigged to blow!

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There’s nobody looking for value out here [in the stock market] – there is none. It’s obvious the Fed is holding up the stock market. This is one of the reasons the Fed will never be audited. – Friend and colleague of Investment Research Dynamics.

The money printing by the Fed has created the most overvalued stock and bond market in history. The stock market overvaluation is even worse if you use real accounting. But it’s not just outright money printing. The supply of money includes credit creation. This is a fact that surprisingly is overlooked by most, even those I consider highly intelligent: debt behaves like money until that point in time when the debt is extinguished by repayment – not “restructuring.” 

Take a look at this:



(click to enlarge – source: with IRD edits). The auto debt used to finance car purchases since 2010 hits an all-time every month. The debt issuance behaves like printed money until it’s repaid. But I would bet at least half of that $1 trillion debt will default. That’s how much has been issue to sub-prime and deep sub-prime and comatose borrowers. That debt created an inordinate amount of artificial economic activity. “Artificial” because it would not have occurred otherwise and was created by printed money that will have no value when the debtor defaults.

We’re seeing that same dynamic in all sectors of the economy: housing, commercial real estate, education, healthcare, general corporate purposes (primarily stock-buybacks). According to the Fed, as of March 25, total credit market debt outstanding was $63.4 trillion. This is up about 20% from its low-point after the Great Financial Collapse Crisis. To put this in context, this number was $30 trillion at beginning of 2000. It represents 350% of GDP – a staggering fact. Even more horrifying when you consider that the GDP metric is highly inflated with the application of a potpourri of statistical manipulation techniques.


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