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The Great Disruptor’s Greatest Moment

Wednesday, February 13, 2019 16:01

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“The Great Disruptor’s Greatest Moment”

by David Stockman

“We each have a special something we can get only at a special time of our life. Like a small flame. A careful, fortunate few cherish that flame, nurture it, hold it as a torch to light their way. But once that flame goes out, it’s gone forever.”

– Haruki Murakami, “Sputnik Sweetheart” (1999)

“Maybe you’re all in for MAGA. Perhaps authoritarianism, central planning, and debt-slavery are your thing. But if you’re buying stocks right now, you must truly believe our betters in Imperial Washington have perfected the proverbial free lunch. And you must have true faith the Federal Reserve can print our way to prosperity… forever. That’s all there is left to support the Everything Bubble.

The financialization of our economy that began with Alan Greenspan opened a gap between values on Wall Street and performance on Main Street. It’s been going on for nearly 30 years. And each Fed-driven boom-and-bust cycle has left the connection ever more tenuous. Here’s what I mean…

Click to Enlarge

“Household assets” are represented by the purple line in the chart above. They’ve grown by the staggering sum of $102 trillion since “The Maestro” discovered his printing press in basement of the Eccles Building. It was the fall of 1987, in the aftermath of Black Monday, when the Dow Jones Industrial Average fell the equivalent of 6,000 points in one day…

Now, consider that nominal gross domestic product – that’s the red line – has grown by only $15.5 trillion during the same 31-year period. That means asset values have grown 6.5 times faster than economic production. This time around, even more than in the dot-com and subprime bubbles, the Fed’s massive stimulus never left the canyons of Wall Street. That’s because the household sector had already reached Peak Debt in 2007. And Corporate America decided it was a better use of its own cheap borrowed capital to buy back its own stock, fund M&A deals, and fatten up dividends than to invest in new plants, equipment, and people.

Wall Street will tell you that the grind on Main Street doesn’t matter. Profits, they say, are soaring. And that supports sky-high equity index averages… Except that there’s been no earnings growth to speak of since the pre-Global Financial Crisis peak. And most of the “growth” we have seen is just born-again profits plus a one-time tax reduction courtesy of Uncle Sam’s credit card.

Nevertheless, price-to-earnings multiples are still at top-of-the-world highs. At the late September highs, the Russell 2000 Index was valued at 51 times reported earnings, while the Nasdaq 100 and S&P 500 Index were valued at 25 times and 23 times reported earnings, respectively.

Click to Enlarge

Chart monkeys are excited this week because we’re about to pierce key moving averages to the upside. Yet why would you want to pay 23 times, 25 times, 50 times earnings at a trend growth rate of just 3.4% at the end of the oldest, weakest “recovery” on record? It’s not rational. Nor is it sustainable.

This economy is not “booming” in any sense of the term known to this universe. In fact, if you account for inflation, there’s been hardly any real growth at all. But, after correctly labeling it “one big, fat, ugly bubble” during the 2016 campaign, the Donald has embraced this monstrosity without reservation.

The self-described “low interest man” in the White House has used his favorite communication tool to bully-tweet his Federal Reserve Chair. That’s after the GOP’s Fiscal Debauch. And the entire Acela Corridor Establishment-Mainstream Media nexus has come to loath him with a purple passion. After the Everything Bubble bursts even Wall Street’s grifters will co-sign it. “The Great Disruptor” has effectively signed his own political death warrant.

The crash of 2008-09 was not some “once in 500 years” economic ailment that needed to be “healed” with “extraordinary” policies like “ZIRP” and “QE.” To the contrary, the Great Financial Crisis was an intense but standard-issue bursting of a bubble. It’s the inherent result of monetary central planning and the systematic falsification of financial asset prices. It’s going to happen again. But it won’t be “all at once,” nor will it be a straight line down. But we must prepare for a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be ~~terrifying~~ frightening…”

- https://www.deepstatedeclassified.com/

Source: http://coyoteprime-runningcauseicantfly.blogspot.com/2019/02/the-great-disruptors-greatest-moment.html

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