The Dow Jones average is again pushing its 2007 highs with the applause and anticipation of CNBC, Bloomberg and all the other media outlets. Time to break out the party hats right? Well, let’s look at it a little closer. You might be bored with this piece as you already know where I’m going with it. Back in 2007 interest rates on the 10 year Treasury were just over 4%, they are now just under 2%. Gold was trading $700-$800. In terms of gold, the Dow is now trading at roughly 50% of what it was then. In essence, the upcoming “party” will be the celebration of an index that has LOST 50% of its real value in 5 1/2 years… congratulations!
But to what end is the current “ramp” in stock prices occurring? The fiscal sink and “unlimited” monetary policies have been thrown at the market, they have not worked. I can say “they have not worked” because we know that unemployment as measured some 15 years ago is in the 17% range. We also know that inflation is running (as measured in the old days) above 8%. These “policies” have done exactly what an Austrian economist would have (and did) predicted they would do. Namely, blow out the balance sheets of the Treasury and Fed with little effect on the real economy.
But wait, the one “trick” left in the bag was the “wealth effect.” Ramp the stock market up (in nominal terms), make people feel “wealthy” as their portfolio balances “swell” and make the people feel wealthy. Surely they will begin to “spend” again, right? Surely the credit machine will restart and begin running up another credit expansion, right? Well no, it’s not happening. “Investment” in capital, machinery and labor is not happening and the global real economies are stuck in neutral or reverse. In fact, as far as the markets are concerned the common man has been selling and exiting the markets ever since the 2008 debacle and now even insiders are selling at a record clip.
So, as I said above “to what end” is the hoopla about a “new high” for the equity market? The “end” is that there is nothing else that TPTB can point to. They can’t point to any sector in the economy. They can’t point to anything anywhere that suggests “it’s better now than it was 5 years ago.” The ONLY place left to point to is also the ONLY place where they still have some “control,” the stock market. Please remember that equity markets throughout all of history have surged in response to a hyperinflating currency. They may have lost 70%, 80%, 90% or more in real terms but as the currency plummets, the price of stocks will inflate as long as the company makes something that is real and usable.
The “all time” high is meaningless and not even real but the hope is that it will “buy some time.” It is all about kicking the can down the road in the hopes that someone, somewhere can come up with a miracle cure for 50 years of living off of our legacy. It won’t happen and cannot happen mathematically. We have “lazied” ourselves to the bankrupt position we now find ourselves in and no miracle or magic is going to fix it. History will not be kind when it looks back and reviews what happened and how all of this happened. I can hear it now; “How stupid must people have been to be so blind as to what was happening?” While on the subject of “how stupid” I could add the same comment to the subject of our individual freedoms and liberties but I won’t. That’s a tirade for another day and even worse than allowing yourself to be fooled financially.