YOUGHAL, IRELAND – We’re backing and filling this week.

Are our views correct? Are we on firm footing?

Or are we slipping and sliding, with a cockeyed perspective?

We’ve already seen that the actions that produce wealth are those where people work to satisfy others’ needs and desires. Neither goods nor services have any value of their own. They are given value by the people who want them… whose desires are aggregated and measured in market prices.

Without the freely set prices, you don’t know anything about what the goods or services are really worth.

And if you dump money into the market… artificially suppress interest rates… impose tariffs… or any other kind of meddling, it saps the information content of the prices.

Then you don’t know if you’re making money or losing it… adding wealth or subtracting it.

Distorting the Truth

This week, for example, the Nasdaq stock market index hit a new record high – it went above 15,000 for the first time. Fox Business reports:

Nasdaq hits fresh record, Dick’s Sporting Goods soars

Both the S&P 500 and the Nasdaq Composite closed at all-time highs Tuesday with the latter topping 15,000 for the first time.

And the most popular tech stocks – the FANGMAN collection… Facebook, Amazon, Netflix, Alphabet (Google), Microsoft, Apple, and something else that begins with an N – are now worth about $10 trillion.

That should be telling us something. The economy is running hot? People are making more money?

Wait… Here’s another item from Bloomberg:

Americans are officially borrowing more than they ever have.

Consumer debt soared to $14.64 trillion in the first three months of the year – even as credit card balances notched their second biggest decline on record. That’s because Americans are still sitting on an-ever increasing mountain of student loans and ultra-low interest rates spurred the housing market to new heights.

The amount of outstanding auto loans also reached a record as consumers shied away from public transit and clamored to purchase personal vehicles, despite soaring used car prices.

What to make of it? Are Americans really getting wealthier… and boosting prices for their leading stocks? Are the FANGMAN stocks a lot more profitable than they used to be?

Or are the numbers – bent by federal policies – distorting the truth?


Let’s look more closely at the FANGMEN.

Whoa! What’s this? It’s not the earnings that have gone up… it’s only the prices. 

That we can see by looking at the price-to-earnings (P/E) ratio. From under 16 times earnings 10 years ago, the FANGMEN are now trading at almost 39 times earnings.

In other words, every dollar earned was priced at $16 in 2011. Now, the same dollar is worth $39 in FANGMAN stock prices.

“Price is what you pay,” says legendary value investor Warren Buffett. “Value is what you get.”

What value do you get from the FANGMEN today? We don’t know. But the price won’t tell us.


Why are the FANGMEN stocks so expensive?

Again, we don’t know. But a fair bet is that it has something to do with the $4 trillion in new money the Federal Reserve created since the COVID-19 scare began. That’s about $7.5 billion every day since the beginning of March 2020.

The Fed prints money. It uses $80 billion of it every month to buy U.S. Treasury bonds. Naturally, with this powerful and unfailing bid under the market, the price of the bonds has gone up… pushing yields down.

At present inflation rates – 5.4% – it means that you lose 1.75% per year on a 10-year Treasury note. That’s the current negative yield.

And naturally, too, investors don’t want guaranteed losses, so they’re ready to try for capital gains in the stock market… driving up prices to their present goofy levels.

This buffoonery affects every financial decision… every investment… every purchase… every sale… every price – everything is queered by the feds’ fat finger on the financial scales.

Heck, even junk bonds are trading at negative real yields. Sounds impossible. But it’s true. The Bank of America U.S. High Yield Index is now in negative territory.

How do you like that, Dear Reader?

High-yield bonds are called “junk” because the borrowers are poor credit risks. Usually, the yield paid to any investor willing to lend to these flight-risk companies is higher than average, to compensate them for the risk that they may not get their money back.

But now, thanks to the feds’ distortions, even lending to businesses that aren’t likely to pay you back yields less than nothing!

Crazy? Or what?

What to Do?

But what would you expect? Printing money never produces wealth… It merely bends the wealth that is already there in the money-printers’ direction.

And the more money you print, the more confusing and chaotic the economic picture becomes. The economy begins to look like a Pieter Bruegel painting, with people doing all sorts of strange things… generally, destroying wealth rather than creating more of it.

Which takes us down to the bedrock question. What can the authorities do to actually improve the economy?

As we’ve been saying here all week, there are some things you can change for the better. And many you can’t.

The burden of today’s Diary is that an economy is one of the latter.




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