My colleague Robert Appel (BA, BBL, LLB) issued a research paper to the subscribers of one of his financial advisories earlier this week. I thought it important that all my readers be aware of and understand the crux of what Robert is saying about our current economic situation and where it will eventually lead.
Here it is:
“The actions of the Federal Reserve (how far they went to ‘stabilize’ the economy) after the Credit Crisis of 2008 is unprecedented in American history. Of course, I’m talking about the Federal Reserve printing nearly $4.0 trillion in new U.S. dollars while keeping interest rates artificially low for almost six years now.
These actions have caused an ‘era of financial insanity’ that penalizes seniors, savers, and prudent investors, while rewarding borrowers, those who leverage, and risk-takers.
It encourages public companies to doctor their own bottom lines by borrowing money (at cheap interest rates) to repurchase their own shares. This reduces the denominator of their earnings numbers—giving only the illusion of prosperity—and also reduces share float, thereby putting upward pressure on stock prices since more money is suddenly chasing fewer shares.
Articles have appeared in several well-known financial publications, with sources, citing central banks around the world have injected $29.0 trillion into equity markets because they themselves simply could not manage a return at the very same rates they were inflicting on others!
The prime beneficiaries of these insane monetary policies are the banks themselves and the government itself. Because low interest rates allow Washington (and other, similar, fiat regimes) to manage debt payments that could not otherwise be managed in a ‘normal’ interest rate environment.
And the government’s re-definition of core economic terms, such as how they calculate the inflation rate (aided and abetted by constant ‘re-calculations’ of data numbers already released to the public) only adds to the melee.
Look at the world today. We have a world war potentially starting in the Middle East, in Eastern Europe, and also in the South China Sea. For the first time in modern history we have a consortium of wealthy countries overtly acting to dislodge the U.S. petrodollar, in plain sight.
We have the highest food inflation in decades, even using the official ‘yardstick.’ Yet the ‘official’ market volatility index, the VIX, a measure of investor fear in the stock market, has the flat chart pattern of an old coffee table that no one is using because they are all at the local tavern drinking the hard stuff…
Chart courtesy of www.StockCharts.com
As has always happened throughout history, markets will again seek equilibrium and slough off the chains of intervention and oppression. In plain English, this stock market has become one big artificial bubble that will deflate in a big way.”