Welcome to our Friday mailbag edition!
Every week, we receive some great questions from your fellow readers. And every Friday, I answer as many as I can.
This week, we talk about national security… the pay gap between CEOs and the rest of America… and more.
Up first, reader Gary M. wants to know how long we can expect these distorted times to last – and what it means for investors…
Fiat currency and the ability to create money from thin air have always been a road to ruin. Once you start down that road, you have to keep doing more of it and there’s no orderly way to stop.
Is it your contention that The Great Distortion will go on for the rest of our lives and we should invest accordingly, or do you feel you will know the proper time to exit?
– Gary M.
Hi Gary, you have hit the nail on the head in terms of the number one motivating factor for The Great Distortion!
In fact, and specific to your question, my new book Permanent Distortion discusses the reasons why this great distortion is in fact not going away… certainly not in our lifetimes.
This is because the magnitude of quantitative easing has reached phenomenal levels.
Quantitative easing, or QE, is the fabrication of currency to buy debt assets from the market.
Though we saw this pattern come into play in the wake of the financial crisis of 2008, it has gone into overdrive since the pandemic of 2020.
For instance, the size of the Fed’s book nearly doubled in just a few months during the first half of 2020. And it was already at $3.8 trillion – a high level.
What that has shown me – and Wall Street – is that whenever the Fed and other major global central banks deem there to be a crisis (however they choose to define that), they will create money. And they will use it to buy assets or debt from the marketplace.
We just saw this in action with the Bank of England. On September 28, it announced it would purchase bonds in order to stave off a crisis in the pound, and in U.K. pension funds that are invested in long-term U.K. government bonds.
The European Central Bank has also announced that even though they are raising rates, they may also increase their quantitative easing or bond purchasing programs at the same time.
All of this means that The Great Distortion is also a Permanent Distortion.
And that means there will be moments – weeks, months – of great volatility and uncertainty in the marketplace.
But there will also be periods of renewed quantitative easing, and that means feeding fabricated money through the market system.
What this will do is continue to provide long-term investment opportunities along the lines of our distortion profit themes.
As a refresher, those themes are New Energy, Infrastructure, Transformative Technology, Meta-Reality, and New Money.
These are the themes I focus on at my Distortion Report and Distortion Money Matrix advisories, to find the best opportunities for paid-up subscribers.
It does not mean that all of these sectors will perform at the same rate or at the same time. But it does mean that they are all in focus during this new period of Permanent Distortion.
Switching gears… Next up, reader Michael O. wants to hear more from geopolitical strategist Peter Zeihan – with whom I sat down for an interview recently…
I’m a huge fan of yours. I just finished reading Peter Zeihan’s book. It was a very interesting read, to say the least. After reading it, I was left scratching my head over something though. Why would the U.S. abandon the Order (stop policing the world)?
I don’t see how that would be in our best interest from a national security standpoint, not to mention from an economic standpoint. Is it because we are no longer capable of doing it, for whatever reasons? Why wouldn’t the U.S. and its allies join forces/work together, like we’re doing backing Ukraine, to ensure that the doom and gloom doesn’t happen?
In other words, why wouldn’t we reinvent globalization? Please ask Peter to address this matter. I need more convincing. Thanks for your dedication to helping ordinary people, like myself, become better investors. It is much appreciated.
– Michael O.
Hi Michael, thank you for those kind words and also for your question about Peter’s book.
Not to assume too much about Peter’s perspective, but here’s what I think the main point is…
The U.S. is doing what it deems necessary to retain its strength in the world order, especially with respect to consolidating our national stance in the world order.
Peter’s point is that the U.S. believes it can do this by retracting its “policing” efforts, as you say. But not necessarily disengaging completely, or reducing its military might.
Again, I can’t speak for Peter. But I do agree that it makes sense for the U.S. to recalibrate its position in the world order given the current geo-political and economic circumstances.
And it seems that the former is being more considered than the latter.
So for now, it seems the U.S. is trying to adopt a more internal approach to fortify its own economy vs. more specific plans on the world stage to help with that.
Either way, I appreciate the question. I will add it to my list of questions to ask Peter during our next quarterly interview.
And, for anyone interested in watching my first interview with Peter in full, be sure to learn more here.
I liked Peter’s book so much, we struck up a special deal.
So you can grab a copy of The End of the World Is Just the Beginning for a discounted price over major retailers… Plus a whole bunch of other gifts, including all four quarterly sit-downs I’m doing with Peter.
Finally, reader Robert S. disagrees with my recent piece on the pay gap between CEOs and the rest of America…
You keep missing the leading cause of astronomical CEO pay.
Corporations are barred by law from making political campaign contributions. So their C-Suite officers raise their own salaries, pay income tax on the money, then put the after-tax proceeds into political action committees (PACs).
As long as it’s cheaper to buy subsidies from governments than take actual risks investing money, this trend will continue.
– Robert S.
Hi Robert, that is a very astute observation.
Cheap money has helped bolster CEO pay. Especially as that pay relates to the level of corporate stock and option prices – which are themselves boosted by the availability of cheap money through buybacks.
But you make an excellent point there. The fact that we have these PACs is a big problem for this country. As you point out, they can aggregate CEO and other wealthy individual donations to politicians during their campaigns.
It does cause these actors to have outsized influence on our political system and policies. So PACs are basically political Ponzi schemes for CEOs and similar elite individuals and bodies.
Thanks for pointing that out, Robert. And thanks to everyone who wrote in this week.
If I didn’t get to your question, look out for my response in a future Friday mailbag edition.
I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice.
And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write me at [email protected].
Happy investing… and have a fantastic weekend!
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins