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Old 09-28-2019, 10:02 AM   #1
Darth Despot
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Where is the inflation?

My son asked me a while back about the market and what he should buy.

The truth is, I had no answer. I know that the values in the market have nothing to do with the real value of the companies or the state of the economy, so I didn't have a good answer as to where he should put his money.

I started giving it some thought, and the answer is amazingly obvious.

I was surprised at how much I had to dig to find an article that supported my conclusion.

https://realinvestmentadvice.com/whe...-asset-prices/

Since 2008 the fed has kept interest rates artificially low and expended it's balance sheet (by creating money and using it to buy assets, usually bank equity). Macro Econ 101 tells us this is inflationary, but the inflation measures used by the government haven't moved much.

So where is the inflation?

Well the Dow has increased 255% since January of 2009. Other indices have had similar run-ups.

I think we found it.

The game is pretty clear.

The fed creates money which flows to the banks, the banks use it to buy stock, either for themselves or by loaning the cheap money to others in the investor class. The market is driven up, but there is no real value behind it. So big money gets much bigger, and the rest of us get a small piece in the 401K

The problem is, what happens if the pump gets turned off?

I suspect the same thing that happened in 2008, only multiplied by about a factor of 3.

So if the fed pulls the plug on the life support system, the patient dies and takes everything else with it.

I'd guess real estate and precious metals will not crash as hard as the securities markets do.
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Old 09-28-2019, 12:00 PM   #2
Baron Samedi
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Bingo, you nailed it.

Fresh printed money goes to certain agents first. Those agents get to spend it before the market adjusts to the new money pool. So, with their freshly printed new money, they buy assets, thus transferring the money to agent #2. Agent #2 has second shot...but there is more money in the market, and fewer assets available...so agent #2's buying power is slightly less, but still pretty damn good, so agent #2 buys more assets, transferring the money to agent #3, who spends that money to buy even more scarce assets, etc, etc.

Therefore, the people who get the money first, benefit the most, as the assets they bought with free money increase in value the most, as agents 2 and 3 and so on continue to buy, driving up the price.

However many stages later, the average consumer, finally gets some of that money, and get a "cost of living raise" or whatever...which comes after the market has adjusted the value of money down relative to assets available...so the last in line to get the money receivers no benefit, the prices on assets have already adjusted up to account for the new, larger supply of money.

That's where the so called "business cycle" comes from. It has nothing to do with business or capitalism, it is the inevitable result of an unstable and manipulated money supply. It's a "banking cycle", not a business cycle.

The second half of that equation, of course...is that all newly printed fiat money is issued as a debt, a loan with interest. So, in the long run, while we use fiat currency, there will always be more debt than there is money to pay it off, and the banks own it.

So, the banks can manipulate interest rates and increase or decrease the value of money. That way, they can issue money in the form of loans, at interest, to consumers, and then at any time, consumers will owe more than they were lent, and if the value of money increases, the banks can create a double whammy to the loanee, who cannot then pay back the loan, and defaults, and the banks gain the assets that the loanee bought with the loan, so the banks collect whatever portion of the loan was repaid, PLUS the full value of the assets forfeited.

That's the system.

Sometimes the banks get themselves in trouble, because they borrow money from one another every day, to maximize profits (which would require a whole other conversation), and leverage themselves. Unwise and uncautious banks then find themselves in the same predicament as over leveraged consumer loanees.

The difference is, that banks are encouraged to over leverage themselves, because generally speaking, the government will bail them out in some form or other. It's like bankruptcy, but instead of losing your house, other people lose their homes to pay your debt, and you keep your own. That's the moral hazard.

Lehman did not get bailed out, because Wall Street did not want them bailed out, but many, many other banks did.

As for market buying....that 255% is just the game of hot potato. The problem is, the insiders have knowledge that will give them early warning when to sell. Your son won't. Every generation has their own Dot Bomb or Housing Crash to contend with. Happens about every 10 years, and we are about due. The only thing stopping it right now is Trump's henpecking of the Fed to keep the boom going. That's working. The problem is, the bigger the boom, the bigger the bust. The bust is the cure for a sick market.


The TLDR version: The new money always goes someplace, and since 2008, it is going into the markets. That's what people with access to fresh newly printed money are buying.


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Who is this self-important instigating douche-bag, anyway?
Dude, Baron has been a valued member of this forum for quite some time.
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Old 09-28-2019, 03:13 PM   #3
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The whole thing is rigged...

Buffett shows publicly what his company buys...if you're into him.

You can buy pre IPO stuff...before they take off.

---------- Post added at 02:13 PM ---------- Previous post was at 02:11 PM ----------

Precious metals aren't investments...
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Old 09-30-2019, 12:24 PM   #4
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Originally Posted by Big/Sky/Fly View Post
Precious metals aren't investments...
They can be, but that's not their best purpose.

The best purpose is a reliable store of value. Taking physical custody and holding it to protect your value.

Those who just trade in precious metals, and don't actually have any in their possession are just playing the hot potato game.
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Who is this self-important instigating douche-bag, anyway?
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