The Stock Market no longer needs The Economy when it has The Fed
Channel: The Nomad Economist
Date: 2020-11-07

The stock market no longer thinks it needs the economy if it has the Fed.
The stock market does not think it needs the economy if the Fed can count on the collateral of Income Tax cash flows from individual US citizens and Federal assets to backstop the risk in Wall Street speculation, day trading and high frequency trading, as well as legal offshore tax havens to arbitrage the tax man.
The Fed had forced leverage.
During the last three decades, leverage was the policy of central banking and got massive support  from policy makers in Washington.  
Now their conundrum is: how do you deleverage? 
Do they help savers to create stable flow of cash into the banking system or the create debt to inflate the system. 
So far, the old tools to deleverage have not work and are not accepted;  thus, they cannot deleverage thru normal tools.
Risk pricing is at high depression levels, with metrics at levels very few times seen before, so what is the solution? 
History has examples of deleveraging, and the "this time is different" is true.
This time the leverage is bigger and it is at a time of social extreme decoupling in the middle of a health and climate crisis . 
 So yes, this time is different, every time that savers are trying to get some money saved it gets destroyed and the next option offered  by "experts" is piling on risk. 
 For sure, the past and the future might not be the same but the future evolves from the actions of the past, there is reason why they rhyme.
 When the similarities in fiscal and economic situations appear, the historic path is a massive destruction of the leveraged positioning via bankruptcies and social disruption, no more no less.
History teaches many lessons and when you have a set of premises that are parallel, it is not wise to ignore the past.
As long as the Federal Reserve keeps pumping monetary stimulus into the financial system, the financial markets can continue to ignore the awful state of the economy.
It feels like we are living in an altered state of consciousness. The Fed has created a fake economy in which a company's value is driven by momentum trading versus the real economy in which a business is valued based on its fundamentals. When you take investment risk off the table, what do you expect? For me, I expect to see more fake companies like WireCard emerging over the next few years.
The stock market valuation reminds me of the effects of botox injections.  What starts out as an improvement gradually become a gross distortion and leads to incredible regret.

Welcome to The Nomad Economist .
The financial system is not the economy even though many people do not recognize the distinction. This means the gigantic efforts by the world's central banks and governments to essentially bail-out both will prove somewhat ineffective. The pandemic has become the catalyst for a major reset of both the financial sector and the Main Street economy, this video will attempt to give some clarity as to what we might find still standing on the other side of this crisis. Note the use of the word crisis, anyone who does not view the pandemic now as a watershed event is oblivious to the world around them

Originally the title to this video was "Mind The Lag-Time Gap - The Worst Is Yet To Come." You may call me Captain Obvious if you hone in on the later part of this title but the first portion is the most important part. We should make a real effort to remember to mind the gap between events appearing on the radar and when they actually impact day to day life. There is such a thing as lag-time, everything is not immediate in our fast-moving world, some events take time to play out. The pandemic crisis is greatly complicated because we have no real idea of how long it will persist. Hints have been made, possibly to ready the population, that this could or will likely continue for months.

For the full transcript go to https://financearmageddon.blogspot.com
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