TSP Smart: Insane or Planned

I’ve spent a lot of time the last 20 years reading on the markets and economics as well as taking data dives here and there. I want to know the real drivers of the stock market and the best leading signals.

I can tell you, the market is not driven by the economy or profits today but the massive money creation programs of the global central banks led by the US Banking Cartel’s Federal Reserve.

Cartel you say? Sounds a bit conspiracy minded. Well…

Citibank and JP Morgan own over 70% of the Federal Reserve’s shares. OWN? Shares? Yes, the our Federal Reserve is a special corporation owned by its member banks.

BUT, BUT the Fed bails out those banks and has oversight of them? Yes, the Bailed Out own the Bailer Outer. How convenient.

Yes, it is all very conflicted and corrupt. It’s been investigated, but the wealthy elites like it that way and the masses are distracted. Here is the latest investigation:

Frontline Investigates the Federal Reserve: Is It a Captured Regulator that’s Wrecking the U.S. Economy with Asset Bubbles? Wall Street on Parade

Well, of course it’s captured. They own it, decide who runs it, and let them retire to cushy jobs on wall street afterwards.

If you want to be shocked at least once a week on Wall Street abuses, I highly recommend checking out Wall Street on Parade. Or reviewing their past articles.

Since 2016 the market has entered a new era thanks to hyper-active central banks.

In 2008 our US charted central bank started buying into the financial markets to 1) first save the market from wall street’s disaster then 2) to re-inflate asset prices to the previous bubble levels and since 2016 3) they’ve just gone insane.

Four trillion dollars in global QE in 2016 alone was pumped into financial markets around the world. They took interest rates negative in Europe. In Japan is the only buyer and seller of their Govt bonds at 0%.

In late 2019 before the pandemic the Fed was pumping money into the banker’s bank (Repo market) which sent the stock market on a tear like when they pumped money into the markets in 1999 for the Y2K worries. And when both pumping efforts reversed, the markets tanked.

In 2020 when the market was doing what a market is suppose to do, clear the over-valuations and punish the poorly run companies, the Fed bet the our farm. They doubled 200 years of money supply in a couple of months.

The Fed hired Blackrock to buy Blackrock’s own Corporate Bond ETFs with the Fed’s money. BTW, Blackrock is the Fed Chairman’s personal banker. Yeah Capitalism.

Yet, people think everything is okay. “The market always bounces back”. They’ve loaded up on risk assets and borrowed more money to do so. Here is where we are today:

Junk Bond Yields are BELOW inflation rates for the first time in history.

The 10-year Greece Govt bond has a lower yield less than the US Treasury.

Invest in German bunds for 10 years and you will get back 97% of what you put in because they earn negative interest rates. With their positive inflation your purchasing power will be down by 15% or more.

US inflation hit 5% and is rising, but the 10-year Treasury is being held underwater at 1.5% meaning it has a negative 3.5% real yield.

Make no mistake, this is a planned transfer of wealth from savers and pensions to speculators and govts via interest rate suppression. More insanity…

And today, Americans think the stock market will return 17% long-term…(face palm).

At the most extreme valuation in history, I can guarantee you will not earn anywhere close to 17% annualized over the next 10 years. I highly doubt you see the stock market back to these levels in 10 years (without massive inflation accompanied by wage inflation).

Plotted here by Advisors Perspectives is an average *valuation* of four methods. I added comments in black. I hope you can see the “what were they thinking” moment at the far right of the chart. Remember the chart is valuation not price…

In the largest credit bubble in the history of the universe, let’s just pour gasoline on fire raging fire. The Federal Reserve is printing and buying $40 billion of mortgage back securities a MONTH to suppress mortgage rates to “make buying homes more affordable”??? No, they make homes more expensive for new buyers.

Gee, I wonder why we have a larger bubble in everything…

Here’s the thing. Who are they really bailing out or helping? Low interest rates do NOT make homes more affordable, they make them more expensive for the same monthly mortgage payment. And as for the stock market…

The top 10% in America own about 90% of the stock market. But half of that is held by the top 1%. Then we get to the top of the top, the top 0.01% (0.0001) of the population.

1913 the top 0.01% of Americans owned 9% (Gilded Age 1.0)

1970 the top 0.01% of Americans owned 2% (American economy booming)

2021 the top 0.01% of Americans own 10% (Gilded Age 2.0)

Yes, we have now officially surpassed the fist gilded age in terms of wealth concentration after our 50 year bout of capitalism that started dying in the 80s. It was transformed into socialism for the rich and corporate capitalism.

Here is the latest stat:

The top 10% control 97% of all capital Income!

What is capital income? Capital gains and dividends and interest on bonds. Not wages. Capital income is taxed a much lower rate than wages. And much of it is NEVER taxed.


By 2045 the top 1% could own half of the US wealth, they already have a third.

90% of the Federal Reserve’s stimulus went to driving up financial asset prices since wall street’s 2008 debacle. The New York Times wrote about how researchers estimate the impact of QE (money printing) on the economy, but found it was 10x higher for the stock market. Lance Armstrong put the next two charts together which show the same. First the effect on the economy versus stocks.

And second, who benefited…

The Plot Thickens

While I have long known that the rich bury their personal expenses in their corporations, I did not realize that they avoid taxes in a much larger way. All those stats about tax rates are a joke to the billionaire and multi-millionaire class because they simply do not produce taxable income while expanding their wealth.

How do they do this? They do not sell their capital investments which would generate a taxable event.

So what do they live on?

Wall Street loans them say a quarter of their portfolio’s value at an interest rate of less than 1%. They live on the loan which is not taxable. And they buy multiple houses, airplanes and yachts with this cash. They get to maintain control of companies via shares, etc and have their cake too.

Buy, Borrow, Die: How Rich Americans Live Off Their Paper Wealth the Wall Street Journal 

“Once you’re already rich, it’s simple, it’s easy. It’s just buy, borrow, die. These are planks of the law that have been in place for 100 years.

Those with $100 million or more can get a rate as low as 0.87%.

Take a look at how it works. Bezo only pays taxes on his reported income, not his wealth growth.

So the rich complain of high tax rates (they are lower than yours) while snickering about how they avoid entering the taxable economy.

Some of this is okay… for awhile, but this system for the wealthy runs deep and wide. They are accumulating land, properties and assets to collect rent without ever paying taxes – even in death – on capital gains. (Side note: I support indexing cost basis to CPI inflation).

No Selling

So there is an investing angle to this massive tax avoidance scheme. Think about it. They never sell. They don’t have to. No selling pressure on the markets. Buy & hold. Market prices are driven buy “marginal” buying and “marginal” selling, and they do not sell.

But what happens when they think the market is going to take a hit? They still don’t sell. They take out insurance for large drops. Derivatives. Who sells it to them? Wall Street banks who if they lose too much, get bailed out.

So this system keeps selling pressure at bay at the same time it leverages up the entire system. The rich are leveraged in this scheme. If they are too leveraged, the forced selling would be a disaster in a deeply down market.

Make a note here: When the market gets rescued by the Federal Reserve, they are saving the Wall Street banks from having to pay very large payouts on their market insurance.

Speaking of *marginal* buying and selling. JP Morgan put out a note that over 80% of Bitcoin in locked up by about 5 people… no selling. So the float on Bitcoin is much, much smaller than the $600 Billion market cap you read about leading to its surge and falls.

But what about us lowly 90%ers who are investing in TSP and 401K and IRAs, etc?

We just have equities, bonds, and… safe funds that are not keeping up with inflation thanks to the Fed’s repression policies.

Short-term the market depends on the central bank policy at this point and their reaction to inflation and market contagion. We saw how they handled the contagion (bond market seizure) in early 2020. The other issue is how much more liquidity can the system handle?

Long-term the stock market is anchored to earnings and cash flow. It is not tightly anchored to this. The ship’s anchored to the bottom of the harbor, but the tides come and go and the ship rises and falls – the market cycle. Market valuations to revenue and earnings rise and fall too.

Currently we are at epic valuations, well beyond 1929 and 2000 bubble levels. And this determines future RETURNS. From extremely high valuations, you get extremely low future returns once the tide goes out.

The tide started to go out a few times in the last few years and the Fed released a tsunami of liquidity into our harbor. So today, the current 12-year total return of the SP500 is extremely negative. In our analogy, the tsunami lifted the boat and anchor and the boat floated inland. When the anchor catches and the tsunami goes out the boat will be high and dry (aka. wrecked).

Bonds and Inflation. Historically bonds provide for inflation expectations with an inflation component. If the market thinks inflation for 12 years will average 2% then the baseline for bond yields starts at 2%, then adds a profit and a default risk component.


Today, junk bond yields are below inflation for the first time in history. In other words, junk bond prices are at record highs too. The distortions in the markets are unprecedented.

Inflation is the number one threat today to the stock market and bond market. The Fed can not stop inflation without crashing their bubbles in Real Estate, Stocks, Bonds. They will avoid raising interest rates too high at all costs… the cost is to us savers.

With the levels of global debt, the central banks will either print to their hearts content until the monetary system collapses, or they will allow for an orderly default on debts which will destroy paper wealth but not necessarily the economy. I expect the former.

We are coming into unprecedented times on several fronts. Protect your wealth.

Invest safe, Invest Smart.

Michael Bond

TSP Smart & Vanguard Smart Investor serves serious and reluctant investors. I recommend reluctant investors sign up for our $75 Alerts level which provides some market commentary and market alerts. If you enjoyed this post, I recommend signing up for our Access level to follow along for the deeper and wider discussions on our investing environment.

Join Today

Categories: Perspectives

%d bloggers like this: