The FAANGs Are Out But Not Nearly As Sharp, by Scipio

The (FAANGs), (Facebook, Apple, Amazon, Netflix, Google), accounted for the biggest part of the stock market’s increase over the last decade and accounted for over 30% of the market’s 2021 27% total return for example.  (See my February 8. 2022 AP post, “The Market”: A View From 30,000 Feet Above by Scipio.)  Since last year, however, Facebook is down 50%, Apple down 9%, Amazon down 22%, Google is down 17% and Netflix is down 70%. FAANG isn’t even FAANG anymore, Its FAAMG since Microsoft pushed out Netflix.

Looking more broadly, we see the Japanese Yen tanking as the Bank of Japan is fighting inflation by pumping more money in the economy.  The U.S. is doing the opposite.  I have never seen such global disconnect among central banks. Stocks, bonds, and even Bitcoin is down since last year.  Then what’s up? Commodities are up: food, metals, oil (eating and burning), and gold. In other words, intangible things are down like a piece of paper that says you own a stock or bond.  On the other hand, tangibles, something you can put your hand on or touch, are up.  This always happens when inflation starts to turn ugly, real ugly.

Cherry-picking a few specific market indicators, for example, we have seen for years a steady decline in earnings.  Many companies in the S&P have no earnings.  There are increased inverted yields (when short term rates are higher than long term rates) on US Treasuries of all durations. There is a liquidity (amount of cash flowing through the system) issue causing overnight repo rates (banks loaning money to each other mostly overnight) crash two years ago and now the Fed has to pump more money into the system daily just so the banks have money to pay each other, forget about you.  We are seeing broad band indices like S&P, DOW, Nasdaq touching or dropping below 50, 100, and 200 MDA’s (Moving Daily Averages that take the short-term volatility out of the equation giving a clearer look where the market trend is headed).

Negative systemic trends have been going on for years but in the last two years the economy has been weakened by supply chain disruptions, bogus COVID lockdowns, small businesses filing for bankruptcy (but coincidently no big businesses!), masses of people out of the job market, workers paid to stay home and not be productive, and possibly the stupidest people in American history at the helm of it all.  Then there is that war Ukraine, not the kinetic one, the economic one. The US has shot itself in the foot over the sanctions and will pay for it dearly when the world turns it’s back on the almighty US Dollar. The only thing that makes fiat money (money without gold or silver etc. backing) work is trust in the issuer. The dollar is currently strengthening (don’t have time to go into why), but that is temporary.  When the world loses its trust in the US Government, our currency will be almost worthless. Does Joe give foreign investors’ confidence?

Meanwhile, The Federal Reserve (The Fed) has painted itself into a corner with its Quantitative Easing (QE) polices of the last decade.  In other words, their policy has been to create endless amounts of money out of thin air, charge near zero interest rates for big businesses to borrow it or give it to Wall Street to play with and create all kinds of financial bubbles with underlying assets worth pennies on the dollar or have no value at all.  No problem, the bankers say, the Fed’s going to give us all the money we want.  Besides if we risk to much and it blows up in our face then they will back stop us, bail us out like in 2010, and put the tab on the taxpayer. For doing all that kind of hard work, just this week trading associates at Goldman Sach’s UK unit just got a $235,000 annual bonus, a 70% increase over last year.  Party on dude! The casino is letting the players play with casino money without risking their own money.  What a deal!  This has caused a massive dislocation of capital from areas of the economy that need that stimulus.  Instead, the money has gone into financialization (bleeding companies dry of their value, gutting their Research and Development (R&D), and driving their own company’s value up with stock buy backs using virtually free and riskless money from The Fed.

The market has always (and will always be) been a place for price discovery where you put your position out in the market place and let investors decide (discover) the intrinsic value.  Then you can buy, sell, trade with an ongoing minute by minute price discovery, not manipulation.  That’s how a free market works.  But crony capitalism over many years has corrupted that and The Fed, by backstopping the banksters, has created a no-lose investment strategy for everyone, it’s called BTFD (Buy The F*****G Dip). That’s how you create the Enron’s, the Robin Hood’s, and Netflix’s. (BTW Robin Hood announced the other day it is laying off 9% of its employees) Fed policy creates tech giants whose capitalization is larger than most nation’s GDP. You thus take away completely the concept of risk which is the underlying restraint in all investing. You make the 1% wealthier than the 99% and that margin grows more pronounced every day.

The Fed’s lies have caught up to them.  Inflation is not “transitory”.  It has been the worst in forty years over the last two consecutive months, and it is accelerating.  The market, not just equities but real estate as well, is in historical unsustainable bubbles.  What can The Fed do?  They have two choices.  They can walk out of the corner they painted themselves into and either go down one side of the wall or the other.  Those are their only two options.  Translating that into monetary policy, they can tighten, that is raise interest rates, to slow inflation or they can continue with higher inflation by keeping pumping money into the economy.  It seems like a dilemma but the choice is easy if you are a politician.  They will raise rates and cool inflation because there is a midterm election coming up and you won’t get re-elected if voters are paying $6.50 a gallon for gas at the pumps!  The oligarchs (yes, we have our own) will grumble but their billions will get them through the election period and then The Fed can continue feeding the Wall Street beast. The biggest problem The Fed doesn’t understand is neither option will work in the long term.  It’s merely political expediency at this point.  This malfeasance has gone on so long, the patient (the economy, not just the market) is terminal and on life support. Humpty Dumpty has fallen off the wall and all the king’s financial manipulators can’t put it back together again. Massive sudden change is ahead.

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By Published On: May 2, 2022Categories: Economics, ScipioComments Off on The FAANGs Are Out But Not Nearly As Sharp, by Scipio

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About the Author: Patriotman

Patriotman currently ekes out a survivalist lifestyle in a suburban northeastern state as best as he can. He has varied experience in political science, public policy, biological sciences, and higher education. Proudly Catholic and an Eagle Scout, he has no military experience and thus offers a relatable perspective for the average suburban prepper who is preparing for troubled times on the horizon with less than ideal teams and in less than ideal locations. Brushbeater Store Page: http://bit.ly/BrushbeaterStore

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