Though I still believe a significant global stock market correction, led by US markets, is on the horizon, what if, against all odds, the US stock market continues to rise? Massive intervention into capital markets today by every major world government has created a bizarre situation in which investors in the major global stock market indexes will ultimately lose whether the major global stock market indexes rise or fall. Since losses created by crashing stock markets are self-explanatory, let’s consider the opposite possibility of a continuation in the current global stock market rally. I’ve admittedly devoted few very articles to the possibility of a continued rally in US and European markets not because I don’t believe that this is a credible possibility but simply because the direction of the US stock market is largely irrelevant to my overall investment strategy (I’ll explain what I mean by that comment later in this article).
Let’s consider that the current rally in the broad US S&P 500 index has been led by the financial sector. To begin, it’s bizarre that a stock market rally has been led by a sector that is so fundamentally weak, that just last quarter, it had to scramble to inflate earnings based upon one-time, non-recurring events, changes in reporting periods, and changes in accounting laws that artificially created earnings from bogus asset revaluations. The response of some to this statement would be “Who cares? I’m still making money from these rising markets.” But are you? As the Managing Director of an independent investment consulting and research firm, I constantly seek opposition views that challenge my current beliefs about the direction of the global economy. Should I find strong credible evidence that my current opinion is wrong, I do what every intelligent investor would do. Alter or tweak my investment strategies and continue to remain flexible.
So what if this current US and global market rally continues for several more months or gives birth to an even longer term rally? Will it change the foundation of my current investment strategy? No, not at all. There is no doubt in my mind that debasement of currencies will be the major contributor to share price appreciation should the US market continue to rally to significantly higher levels. Thus, a hypothetical additional 30% rise in global market indexes will almost certainly be almost entirely attributable to a 30% or more decline in the purchasing power of the currency in which the stock shares are denominated. When I see evidence that global economies are recovering on a fundamental level, then I will believe that stock markets can continue to rally on something other than the debasement of the US dollar, the Euro, the British Pound, the Yen, and other currencies. Should US and European markets continue to rise, the financial elites and bankers that control the fraudulent monetary system will merely be creating an illusion of wealth that no doubt will dupe the average investor into the belief that he or she is recovering wealth through rising stock prices. In reality, either no real wealth at all will have been created or real wealth potentially will even have been destroyed in the process.
If one were to hop a flight to Zimbabwe, I’m sure one could find a Zimbabwean within ten minutes of deboarding the plane that could ably explain how bankers create the illusion of wealth while simultaneously destroying it. In November, 2008, the UK Telegraph reported that inflation levels in Zimbabwe were running at 13,200,000,000% a month. Just ask any person living in Zimbabwe that if they feel rich because they had less than $1,000 Zimbabwe dollars in 2000 but now own more than $4 trillion Zimbabwe dollars. Central Banks, in their policies to combat the economic failure that they have created, are only interested in creating the illusion of economic recovery through rising prices in stock markets even though these rising prices ultimately create zero or very little real wealth and will most likely destroy real wealth in the very near future.
It is never the amount of money that one owns that defines the change in real wealth, but it is the purchasing power granted by that money that defines the change in real wealth. Thus, if a 40% debasement of currency is necessary to create an additional 30% rise in stock markets, oddly enough you can gain 30% more value in your stock portfolio while simultaneously losing 10% of your real wealth. To measure whether monetary policy executed by Central Banks is truly helping or destroying families’ abilities to weather this crisis, one must measure only the change in the purchasing power of your money and never the change in the absolute amount of money that you own.
Central Bankers have used the trick of illusory economic recovery throughout history to tame the masses into complacency at points in history when the masses were ready to revolt. Recall the US dot com crash in March, 2000 when the major US tech index, the NASDAQ, shed about 75% of its value in just 3 years. In response to the collapse of NASDAQ, the US Federal Reserve slashed interest rates 12 straight times, from 6.5% to less than 1%. The purpose of debasing the US dollar so dramatically through interest rate cuts was to erase peoples’ memories about the substantial losses they suffered in the dot com crash by artificially creating a surge in real estate prices. Though the US Federal Reserve succeeded in creating an illusion that the economy had recovered, the true question everyone failed to ask back then was if the appreciation in real estate prices was real and sustainable.
Boom —bust cycles are artificially created by Central Banks. They create the initial boom cycle in four stages: (1) Slash interbank lending rates so low that businessmen and businesswomen cannot resist the urge to borrow and speculate. There will always be many takers for money that is offered at practically free rates. (2) Create an initial artificial rally in asset prices that is directly attributable to the debasement of the currency in which the asset is denominated. If a Central Bank debases a currency by 15%, then the asset priced in that debased currency will automatically rise 15% even though no real wealth has been created. In the post – dot com crash environment, the US Federal Reserve actively sought to drive up the price of real estate assets. (3) Employ the support of various very visible banking and political leaders worldwide to issue public statements of economic recovery and report how consumer confidence is growing at rapid rates. (4) Allow the synergies of rising asset prices caused by currency debasement and official public support by prominent individuals to attract speculative buying to fuel a further spectacular rise in asset prices.
What inevitably follows this period of boom, because it is entirely created by unsustainable Central Banking monetary policies, is a period of market joy and then bust that follows the following three stages: (1) Central Banks win appeasement of the public’s anger from the previous crash they helped create (in this example, the dot com crash) by artificially creating another “rally”. However, since they jump start any new rallies by creating a rise in asset prices that is solely due to the deliberate debasement of currency, and not through a sustainable demand for goods and services that are driven by free market forces, the only possible end result of the new manufactured rally is its eventual bursting; (2) Since the current rally is based upon a gross distortion of free market forces, it eventually bursts; (3) Bankers act shocked when the current rally falls apart, and in response to angry citizens, claim that unforeseeable circumstances are the cause of the new rally failure.
In response to public anger, Central Bankers repeat steps (1) through (4) of the boom creation cycle above, which inevitably will be followed by steps (1) to (3) of the bust cycle. Central Banks have created the same boost-bust cycles over hundreds of years with very little real wealth creation surviving the bust portion of the boom-bust cycles. That is exactly why over time, the rich have been getting richer and the poor have been getting poorer. The rich get richer primarily because they understand the fraudulent nature of our current monetary system and thus have always understood when to cash in their chips. The poor get poorer because they have zero understanding of the fraudulent nature of our monetary system, and what little wealth they accumulate is always destroyed during the bust cycles. Given the horrible fundamentals of the global economy today, I am quite sure that a continuation of this stock market rally, should it materialize, will create almost no real wealth or even losses in real wealth for the great majority of its current participants. Thus the conundrum is, whether the US markets rise or fall, for those invested in the broad market indexes today, most will suffer losses of real wealth. Only the very few that recognize the fraud upon which such rallies are built will have the foresight to exit in time.
However, there is a way to combat the fraudulent illusions of wealth that Central Banks create. Those that properly position themselves in hard assets, regardless of (1) whether global stock markets continue to rise; or (2) crash by the end of the summer/ beginning of fall, will continue to create real wealth. And that is the beauty of truly understanding the fraudulent nature of Central Bankers and the fraudulent monetary system they impose upon the world.
Whether I am right or wrong about US markets tanking by summer’s end/fall’s beginning, if I position my investment assets based upon an understanding of the fraudulent monetary system, I can still continue to create wealth. And this is why I spend so little time discussing the possibility of a continuing US stock market rally. I only wish to participate in markets in which rising prices produce real wealth. In essence even if US markets continue to rise and take global stock markets along for the ride, in reality, they will truly be crashing in terms of purchasing power. And if the Dow doubles in numerical terms (a far different story than doubling in wealth, because an increase in number is not the same as an increase in wealth), the only possible end result of such a rally built on the back of a fraudulent monetary system is eventually a monumental crash.