By Bill Bonner
The Wall Street Journal reports that the rally in U.S. stocks is turning into a real bull market.
Why? Because there’s so much money around.
There’s a “superabundance of capital” in the world, says Bain &
Co. It’s in banks, investment funds, corporate treasuries —
everywhere, except where it is needed. Households are tight. But the
financial and business sectors are flush.
Bain said that the world will be “awash in capital” until 2020, when
financial assets are expected to be 10 times the size of the world
economy: $900 trillion, compared with a world GDP of $90 trillion.
Whee!
Whom do we thank for all this money, money, money? Central banks!
The Fed has its “QE to Eternity” program. The Bank of Japan has
announced it will start one of its own next year. Mario Draghi, head of
the European Central Bank, said last week that he would do more to
provide liquidity to the flagging euro zone. And the Bank of England —
under incoming governor Mark Carney — is scheduled to make a policy
statement this week. Odds are it’ll join the crowd and announce even
easier money policies.
As head of the Bank of Canada, Carney presided over a system with
even more private debt to disposable incomes than the U.S. Although
this measure of debt continues to fall in the U.S., it continues to
rise in hockey country. Today, debt to disposable income is at 108% in
the U.S. — after peaking out at 130% in 2007. In Canada, the ratio is
166%.
So what happens to all of this new cash and credit?
Well, somebody is putting up $24 billion to take Dell private.
Virgin Media got a bid for $23 billion. And the U.S. stock market is
near an all-time high.
Meanwhile, big-time investors such as Blackstone are buying thousands of single-family homes — for cash.
Apple has $137 billion in cash that David Einhorn is trying to get
it to share with stockholders. And, oh yes, U.S. corporations have
about $5 trillion in cash in total — including some $2 trillion said
to be overseas.
But there are many who still want the feds to do more. According to
University of Michigan economics professor Justin Wolfers: “By their
own framework, they’re not doing enough.”
But it’s their own framework we’re worried about. It’s bent. Twisted. Corrupt, even.
Let’s see… What is really going on? What kind of game are central bankers playing?
Central banks give their friends and favorites access to almost
unlimited amounts of money at nearly zero rates of interest. What do
these privileged few do with the money? They buy assets — houses,
office buildings, companies, gold and silver.
Ordinary Americans aren’t getting the money; it’s locked up in the
hands of the 1% — or even the 0.001%. And there aren’t enough of these
rich insiders to move consumer markets. Toilet paper and gasoline move
up slowly. But prices for stocks, bonds, Manhattan real estate and
expensive works of art go up fast.
Meanwhile, home ownership, by the people who live in their houses, is going down.
Stock ownership, by the middle class, is also on the decline.
Powerful, well-financed groups are buying. Middle America — short of funds — is not.
The elegance of this scam is breathtaking. Central banks print money
to “stimulate the economy.” But it doesn’t stimulate the real economy.
GDP growth is still chugging along at stall speed. Instead, the Fed’s
“EZ money” simulates the financial markets and financiers’ profits,
instead.
In a real boom, most people would become wealthier and better-off.
In a phony boom, only a few become wealthier. A phony boom does not
create wealth; it just transfers existing wealth.
Central bankers give new money to their friends. The friends use it
to capture a larger share of the real wealth in the nation.
Regards,
Bill
http://www.billbonnersdiary.