Last Thursday, the U.S Department of Labor announced 6.6 million people filed for unemployment claims — that’s a mind-boggling total of 22 million this month. Coincidentally, minutes later, the Federal Reserve announced they will buy an unlimited amount of junk bonds: the lowest quality corporate debt on the market; risky credit that's propping up “zombie companies”: businesses that only survive because they can issue new debt to pay off existing liabilities. The image you see above is the result. The most shocking day in American economic history where Main Street gets laid off and Wall Street receives unlimited bailouts.
Over the past decade, anyone studying the stock market will have realized modern-day economic growth is artificial: years of money printing, stimulus packages, and tax breaks funded by an ever-increasing deficit. It’s a Ponzi, but on a massive scale. A fraudulent investing scam promising high rates of return with little risk to investors — an accurate depiction of recent market events.
Here’s how it works: the Federal Reserve creates “new money” from thin air via money printing — typing numbers into the Fed’s computer. Then, the central bank loans this new money to the megabanks, who then issue loans to businesses and consumers. Loans, of course, are vital for growth, but they have become the bread and butter of our economy and society has become over-reliant on debt. New loans are painting over bad existing loans. It’s a system that’s unstoppable unless a major black swan — or white swan — disrupts the cheap money flow.
COVID-19 was that disruption: First, crashing the economy; second, exposing the stock market as a fraud: A decade of bogus earnings growth fueled by stock buybacks, fueled by risky debt. Buying back stock used to be illegal and for good reason: it’s a form of insider trading. CEOs realized this, but to keep the market happy, they bought every share they got their hands on, pumping up stock prices to bolster their equity and bonuses, instead of investing in infrastructure, cash flow, and their employees. The Coronavirus put an end to this, destroying profits, hence, destroying their ability to buy back stock.
Now, with their inability to produce earnings growth — real or fake — the offending companies are facing the consequences. Let’s say you’re a public airline company that will fail without a bailout. Instead of saving for a rainy day, you are both cashless and profitless. After a decade, what do you have to show for it?: A stock bubble that’s going to burst when the economy collapses.
But just like in 2008 with the megabanks, it’s the corporations engaging in risky activity that will receive bailout money. Because of the Fed’s decision to buy risky corporate debt, the Ponzi is kept alive, CEOs keep their equity, and debt investors keep their bonds.
Outside the corporate bubble, however, real America suffers. Let’s say you’re a small business. You’ve been saving for a rainy day while making prudent investment decisions over the last business cycle. But because of the virus, you take a colossal hit. While your door remains closed as the world remains on lockdown, you fire staff or furlough them, you dig into your emergency fund to survive. But no bailouts for you. You and your employees have lost their job, their careers, and their financial security. Everyone is wiped out.
This is capitalism for the people and socialism for the rich.
As a result, people are finally becoming wise to the corporate Ponzi scheme. Individuals who reject the phony economic system are looking for guidance. There’s a big misconception, however, that everyone in the finance industry is there to take your money, only caring about the value of their assets while leaving hard-working people holding the bag. This is false.
Over the past decade, the top talent has left Wall Street, starting their own funds, and warning people about Wall Street’s “buy stocks” machine: replacing human traders with algorithms that make up 80% of the daily volume and with salesmen who perpetrate the “stocks only go up” narrative. A narrative that’s created double-digit percentage losses for retail investors.
The word is out on FinTwit: Twitter’s hidden but open financial community where non-institutional investors receive insights from finance pros who have escaped the Wall Street bubble. These money managers don’t want to participate in and perpetuate the narrative because they know what happens next. While Wall Street was urging retail investors to buy stocks at the peaks in 2001, 2008, and 2020, FinTwit got Main Street out.
Inside the Wall Street bubble, investors have yet to escape the “stocks go up forever” fallacy, due to loose monetary policy and interest rate suppression, think they have no choice but to take part. Let’s face it, it’s hard to escape. Our options are limited, so the simplicity of just hoping stocks will go up is attractive. We can’t leave our life savings in the bank because, with a realistic inflation rate of 5%, we lose 5% of their purchasing power each year. We can’t put their money in bonds because yields are so low. It’s also hard to outsource wealth management to successful money managers because our savings balance is below the minimum they require.
Instead, they are clinging onto their stocks, not because of fundamentals, but because of the “buy the dip” mentality that’s worked for so long. Some are even committing more capital. But what happens when we get to new all-time highs with a depression looming and with an economy already slowing pre-virus? Wall Street’s goal is to bail out its buddies and leave Main Street holding the bag.
Slowly but surely, most people will free themselves as reality kicks in. They will pull their money from the system, moving their wealth into anti-system, anti-repressive assets like gold, silver, and cryptocurrencies — even into other tangible assets like fine wine and fine art.
If you’re tired of the same-old-same-old and sick of financial repression, you can do the same. Now’s the time to pull the plug. Recent moves by the Fed means a monetary revolution will come sooner rather than later. The people are angry and they want system change now.