The Boom Cycle & The Ensuing Bust Cycle
The weapon of choice is Fiat money, and central bankers utilise this weapon merciless to rain misery and death on the unknowing masses. Since Fiat was created, banks have fed off the misery they have wreaked on humanity. George Washington, one of the wisest of all presidents, understood this very well and it’s revealed clearly in this quote. This money created out of thin air is used to fuel the Boom cycle and after that stage, the inevitable bust cycle follows only to be fuelled by another boom cycle as the Fed floods the markets with money.
“But if in the pursuit of the means we should, unfortunately, stumble again on unfunded paper money or any similar species of fraud, we shall assuredly give a fatal stab to our national credit in its infancy. Paper money will invariably operate in the body of politics as spirit liquors on the human body. They prey on the vitals and ultimately destroy them. Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.” — George Washington in a letter to Jabez Bowen, Rhode Island, Jan. 9, 1787
Another wise president was Thomas Jefferson, who was so against bankers that he thought they were worse than a thousand standing armies and he was correct.
“I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs.” Thomas Jefferson, U.S. President
Central bankers have caused more deaths and pain than the most tyrannical of rulers could ever dream of achieving. This has all been done in a cold and calculating manner. The only incentive being dollars; hence, lives are traded and sold based on the dollar amount they stand to make. If it’s profitable for them to let you live, then you live, if not they take you out. Money trumps everything; life is just another number on a piece of paper.
The Boom Phase
To cause a boom, they flood the markets with money and to cause a bust; they tighten the spigots. This is what caused the dot.com bubble and its subsequent bust. The same applies to the housing bubble and the best, and the same thing is occurring now. The result is always the same, they either change the music or the dance, but everything else is the same. In this instance, they have kept rates low for an unusually long period and now, they have decided to do the unthinkable, embrace negative rates.
The first stage of the bubble was created by allowing corporations to borrow large sums of money and use this to buy immense amounts of their shares back, thereby artificially boosting the EPS and making it look like all is well. When in fact, nothing is improving and only the number of outstanding shares is dropping, which gives the false impression that profits are increasing when they are not. In fact, in many instances profits would have declined if the share buyback programs did not exist.
Central Bankers and Corporate world ready to embrace negative rates
The Corporate world will embrace Negative rates with gusto as it will be akin to crack addict being given a new dose of super crack. The consequences of these actions will be dire for the masses; history does not change, only the outfits change, but the con is always the same and the ones left holding the empty bag are the sheep (otherwise known as the masses). The Fed is trying to put on a brave act, but you can already see them backtracking from the firm stance they took last year. Now they are stating that all is not well, and the economic outlook is weaker than expected. They will have no option but to join the rat pack; in this instance, resistance is futile.
The Fed raised rates to give the masses the feeling that the markets are free, when in fact, they are not. The markets are entirely controlled and manipulated; every boom and bust cycle was planned in advance of the event. The chart below illustrates that the economy is far from healthy, in fact, it appears to be almost in a coma and is being forcefully kept a life through massive injections of hot money. Take away the hot money and this illusory economic recovery crumbles.
The chart topped out in 2000, and after that, It has been nothing but a downhill journey; we did get a quick dose of relief from 200-2009, but the chart put in a bearish lower high and from there, things took a turn for the worse.
While the money supply has increased, this money is not making its way to the masses; this is a nefarious trick the Fed employed to coral the effects of inflation, and it’s working so far. To create a large bubble, the Fed needs to put this money into the hands of the masses. They seem to be testing this with the auto market as we have subprime bubble waiting to pop there.
The next forage will be to find a way to put this money into the hands of the masses for various general expenditures, like opening a new business or better yet, creating the next housing bubble. The demand for housing is rising, but most people cannot qualify for a mortgage. Imagine what would happen if they suddenly made it easier to get a loan. The slogan would be “buy now and cut your rent”; for a time, this slogan would be true as it’s far costlier to rent than own a home today in most parts of America.
Economic recovery is illusory in nature
If the recovery were real, interest rates would not be held low for so long, and the Fed would need to support the stock market. After it stopped the corporate world stepped in via the illegal usage of Stock buybacks. Now instead of trying to improve the bottom line, they focus on only buying back more shares and in doing so artificially boosting the EPS. It’s a perfect scam, no work and big pay; and as interest rates are low, the incentive to borrow large sums of money to do these dirty deeds is greater than ever. Hence expect stock buybacks to surge to levels that will appear crazy one day.
Suggested Game strategy
The corporate world has gone a massive share buyback binge, and this binge is not showing any signs of letting up. It allows corporations to borrow money for next to nothing and then use these funds to buy back massive amounts of shares and in doing boost the EPS (Earnings per share). Negative interest rates will be akin to trying to put out a raging fire with gasoline. Negative rates will provide rocket fuel to share buyback programs. Corporate debt will soar to insane levels; if you think today’s levels are crazy, you are in for a rude awakening as debt levels will soar beyond anyone’s imagination. We live in a world of extreme greed, and our government seems to favour corporation fraud as not one major banker has gone to jail for triggering the financial crisis of 2008. In this environment, you need to do that which seems insane from a logical point of view. Thus, all sharp corrections should be seen as buying opportunities. From a mass psychology perspective, this is still the most hated bull market in history, and until the masses embrace, it is destined to run a lot higher than most envision.
Gold, a great hedge in world full of uncertainty
Lastly, we would suggest having a core position in Gold; at some point in time Gold will start to react strongly to this solid form of currency debasement. Currencies are being destroyed on a global basis at a level never seen before. This will not end well, but as we have pointed out many times before, being right does not equate to market success. One has to look at the time factor, and most individuals do not have the staying power to bet against the Fed. Wall Street is full of tombstones of good men who were right but could not stay solvent long enough to benefit from their insights. Hence, we would not bet the house on Gold and nor, should you? No matter how good an investment appears to be, one should never put all of one’s eggs in one basket.
And what is an authentic madman? It is a man who preferred to become mad, in the socially accepted sense of the word, rather than forfeit a certain superior idea of human honour. So society has strangled in its asylums all those it wanted to get rid of or protect itself from because they refused to become its accomplices in certain great nastinesses. For a madman is also a man whom society did not want to hear and whom it wanted to prevent from uttering certain intolerable truths.
Other Articles of Interest:
Should you fear Stock Market Crashes -Video (March 24)
Market Crashes-Is Panic Warranted (Feb 25)