The bottom line: global Bubbles are fragile and increasingly vulnerable. In particular, China is a Credit accident in the making. And Fed policy certainty has been the glue holding things together – keeping the mania raging, keeping the leveraged players playing, keeping all the options and derivatives speculators betting on the long side, and keeping the weak dollar supportive of levered “carry trades” the world over.
I am going to pull the salient data out and print it up front… So my more simple conclusion is that our financial system is FUBAR.
In the early years, the personal income tax worked as Congress intended, falling squarely on the richest. In 1918, only 15% of American families owed any tax. The top 1% paid 80% of the revenue raised, according to historian W. Elliot Brownlee.
In other words, the labor market is tight today. Are we really worried about filling all the below-living-wage burger-flipping unfilled jobs? For reference, 5 million jobs paying $20K a year ($10/hr) comes to $100 Billion in wages a year – the Fed is printing $120 billion per month to monetize the stock market.
“…no adequate rational market explanation for this performance.”
Fear the Central Banks.
Michael Bond comment: Just read it. Term “coup de whiskey” means in 1927 with over heating markets the Federal Reserve lowered interest rates instead of raising them. The 1929 stock market bubble top took 30 years to be topped after… Read More ›
This is not a factor in TSP investing or other index funds, but it tells us a lot about our money system and how markets can be controlled to a point. And more important, how many narratives are controlled too.
What I learned today is that when we hear the word “socialism” from conservatives, it is as much against decentralized shared democracy as it is about spending and definitely not about shared ownership.
The financial sphere is not driven by inflation, but “inflation expectations”. The Fed will say whatever it takes to attempt to manage expectations, but the market may not listen. Higher inflation pushes interest rates higher, higher interest rates will bring down stocks… and bubbles do not work in reverse. This is the risk of 2021.