PARIS – Yes, Stimulus Theory – the idea that cheap credit and EZ money will make us richer – is a fraud.
But that doesn’t make it unpopular. Au contraire… it is a classic federal program: like the war on drugs, or the war on terror… the more it fails, the more it succeeds.
That is, the more stimulus drags the economy down… the more people want the feds to “do something” to fix it. And what can they do? Stimulate!
And now, The New York Times and the Trump Team are on the same page. Both want more stimulus. The NYT:
…the Fed should have kept interest rates lower for longer after the 2008 recession, to deliver a significantly stronger dose of economic stimulus… it should show a little less fear of inflation the next time the economy needs its help.
How many bad ideas can you pack into a single sentence? We don’t know… The NYT deserves credit for trying.
The ol’ Gray Lady thinks it knows how to run an economy, via monetary policy… that the Fed didn’t stimulate enough ($3.6 trillion was too little!)… that it knows how much inflation is just the right amount (2% or more)… and that the Fed actually helps the economy (where’s the evidence?). But it’s nothing more than a colossal swindle.
As we saw yesterday, stimulus hasn’t worked for Trump. He cut taxes at a cost of $180 billion last year alone.
It looks like he got a temporary boost in spending last year, which ended in the last quarter of 2018. Consumer spending, employment, GDP – all are turning down. And federal debt is now increasing about twice the rate of GDP.
We could look back at the whole post-crisis period of the last 10 years and see the same thing – huge amounts of stimulus, little real growth.
The Fed put in $3.6 trillion of fake new money. And the federal government ran some $11 trillion in deficits. Result: The greatest stimulus of all time produced the weakest recovery on record.
U.S. GDP rose from $15 trillion in 2008 to $20 trillion in 2018, while federal debt increased from $9 trillion in 2008 to $21 trillion 10 years later – about two times as fast.
We’ve explained why it doesn’t work.
In short, giving away money doesn’t inspire people to work harder. You give money to the baker and he stops baking. You give money to the teacher, and he takes earlier retirement.
You give money to the entrepreneur – in the form of loans at negative real rates – and he begins to think about how he can use that free money for stock buybacks, mergers, acquisitions, special bonuses, and other quick tricks.
Of course, the feds don’t have any real money to give away. They are running trillion-dollar deficits, remember. So, they stimulate with fake money. And this creates a whole new set of perverse consequences.
When the feds tax away real money, they are taking money from someone who earned it and giving it to someone else. Simple enough. One guy loses; another wins. The taxpayer may have been planning to buy a new pickup truck. Instead, someone else buys it with his money.
But when the feds give out fake money – or lend it out at artificially low rates – who wins? Who loses? It’s harder to see.
As we’ve seen, the stimulus money doesn’t magically cause new cars or new houses to come into existence.
All that has come into existence is new money, which then competes with the old money for goods and services. Result? Inflation. Prices rise, stealing real wealth away from taxpayers and consumers alike.
Part of the Swindle
And today, it takes the typical working man twice as long to earn the money for a pickup truck as it did 40 years ago. Same thing for a house. The average house may be bigger and more comfortable, but it’s also more expensive, costing the average workman twice as much time as before.
We can also look at what it costs a working man to enter the ranks of the capitalists. That is, how many hours would he have to work to buy, say, the 30 Dow stocks?
There, too, stimulus has robbed the working stiff and rewarded the rich. The feds put out more fake money; but the real values of America’s businesses don’t go up just because the feds put out billions in counterfeit money. The only thing that went up was their prices.
In 1978, the average hourly wage was about $7. Now, it’s $23… or a little more than 3 times as much. But the Dow in 1978 was around 800. Now, it’s over 26,000.
So, 40 years ago, in less than three weeks’ work, an ordinary wage slave could become a proud owner of America’s leading companies. Today, he has to work for nearly 30 weeks – 10 times as much – for the same dubious pleasure.
But Fed chairman Powell says low inflation is “one of the major challenges of our time.” The NYT thinks inflation of less than 2% is “a sign of an under-achieving economy.” And Donald J. Trump thinks he knows what to do about it:
I personally think the Fed should drop rates, I think they really slowed us down…
And guess what? AOC and Bernie Sanders are on board, too. They all want MORE STIMULUS.
So watch out. More stimulus is what we’re going to get. Good and hard.
More to come…
MARKET INSIGHT: THE COMING IPO RUSH
Jeff Brown, Editor, Exponential Tech Investor
Ridesharing company Lyft (LYFT) just had its initial public offering (IPO) last Friday.
And we know investors were scrambling to buy shares in Lyft by looking at where the stock was priced.
When demand for the IPO is expected to be high, the company can set a higher price for its stock. And when demand for the IPO is expected to be low, the company must set a lower price for its stock.
In mid-March, Lyft said it would price its IPO between $62 and $68 per share. But there was so much demand for the stock that the company bumped the price up to $72 per share last Thursday – less than 24 hours before the IPO closed.
The IPO sold out at the higher price, raising $2.3 billion for Lyft… Which is now an $18 billion company.
This tells us that investors were scrambling to get access to Lyft’s stock. Clearly, the market is hungry for bleeding-edge tech companies.
It’s understandable. As I’ve been telling my readers, the pace of new tech IPOs over the past 10 years has been underwhelming.
Thanks to a readily available supply of private capital coming from VC’s, private equity, and even financial institutions, these companies stayed private for far longer than is normal.
This blocked average investors from staking a claim in the most exciting technology companies today.
But that’s all changed. Lyft’s IPO is their signal that now is the time…
We will see a flood of incredible IPOs this year.
Uber, Lyft’s top competitor, will announce its own IPO within the next month or two. And high-tech companies like Palantir… Pinterest… Slack… Zoom… and many others are right behind.
In fact, there are hundreds of private “digital first” tech companies ready to IPO in the near future. These are companies that were born in the ashes of the 2001 dot-com bust… And remained private too long because it became harder for them to raise capital.
2019 will be a banner year for tech IPOs. And that will give investors a chance to invest in the most exciting companies on the planet.
– Jeff Brown
P.S. 2019 will be a banner year for tech companies. The very best will soar by 10x or more, in the years ahead. And if I had to recommend one technology investment this year, it’d be this one.
But fair warning, this opportunity won’t be for everyone. If you can’t handle volatility or big price spikes overnight, then maybe sit this one out. But if you’re prepared to take on some risk to potentially make a small fortune, then go right here.
Is This the Calm Before the Stock Market Storm?
As our editor has said, the Fed’s meddling with the market has taken us down a dangerous path. Now, market strategists are starting to raise the warning flag… The Fed may have “rescued” the stock market one too many times with its easy-money policies. The joy ride is over. And now, the Fed may be out of firepower…
Amazon’s Alexa Isn’t the Only One Listening…
E-commerce giant Amazon has been forthcoming about its popular “Alexa” device. Namely, that it uses data on consumers to “train” the device to work better. But here’s something the company won’t tell you: Alexa isn’t the only one listening. There are thousands of human beings listening in, too…
The Fed’s Next Desperate Move
As Bill put it recently, America’s Federal Reserve has now abandoned any pretense of sensible monetary policy. Come the next recession, the usual “toolkit” won’t suffice. The Fed will get desperate. And Dan Denning, Bill’s coauthor on The Bonner-Denning Letter, shows just how desperate…
Today, we share excerpts from a letter one dear reader penned to our editor… Are we headed towards a “life without our current government”?
I am a faithful reader and would like to take some time to discuss some things that have been on my mind for quite a while now. I agree with many of the things you write and, connecting them with other things I have studied, believe that there are changes coming to our country that will be unsettling and profound. I see many things now occurring that I have seen in organizations that were dying, most often going unrecognized by those in charge. Looking at history, I am encouraged by, rather than fearful of, the possibilities in the upcoming changes. I want to be part of the discussions that fuel your writings and contribute to those ways in any way I can, however meager or humble…
One of the common themes that I perceive in your daily essays is that our government is a sham intent on benefiting those with connections. Another common theme is that to expect anything truly good to come from our current government is to ignore reality. Yet, another theme is to debunk the idea that we can correct the current flaws and shortcomings in our government and, instead, should focus on post-apocalyptic survival…
How do all these things connect with the U.S. in its current state? It seems that the U.S., in its current state is, if not gurgling in its death rattle, is at least at the point of receiving last rites. Those in power want to milk the country for personal benefit, heedless of the fact it will destroy the life they currently know and cherish. The have-nots want to exact revenge on the haves by forcibly taking everything possible, thereby benefiting the “common good,” even though that will only destroy common folks’ chance of having a “comfortable” life. Although various groups/factions profess to want everyone to have what is considered a good life, there seem to be few shared values that provide a common definition of what it means to have a good life. Instead, it has become a quest to strictly enforce demagogic values on believers and nonbelievers alike, whether through indoctrination, intimidation, fear, or coercion…
That is not what was intended by our nation’s founders. The founders were thoroughly versed in the evils and shortcomings of mankind. When they crafted our Constitution, they carefully thought out ways to prevent those with bad or greedy intent from wrestling enough control to visit evil upon the common man. For a while, it worked, but it was not enough. Perhaps the founders relied upon men having moral structure, though they understood how some would work to subvert the original intent in our newly fledged government and turn it to devious purposes. Unfortunately, it seems that morals have been beaten out of our society to a great degree, and we have devolved into what we see today…
I believe that thinkers in the U.S. are currently wrestling with the concept of life without our current government. I believe that they are formulating ideas and testing possible solutions to create a government that adheres more closely to what was originally envisioned in our original Constitution and improving on the new government’s ability to maintain those principles. And I believe that when the collapse comes, thinkers like you will have crafted the foundations for something better.
– Don G.
IN CASE YOU MISSED IT…
Have you heard Jeff Brown’s recent prediction? It’s his most important one to date…
When Bill’s go-to tech expert makes a prediction like this, it pays to listen. He picked the No. 1 stock in the S&P 500 in 2016 and 2018… And the latter has handed his readers over 160%, so far…
Now, he’s pounding the table on a new idea… One that’s earned him the nickname of “America’s Cockiest Investor.” Read on here for all the details.