Back in March 2009, there were three actions taken to initiate what is essentially an 8 year squeeze in asset prices. These three actions were:
1) Introduction of massive permanent open market operation (POMO) buying program that is known as quantitative easing today. POMO existed long before, but it was previously used to offset the issuance of paper dollars. IE - Federal reserve issues serial numbers for currency, US Mint prints them and the Fed holds bonds as collateral against them.
2) What was billed as the stimulus package was passed. This was a very creative way to send money to lenders, banks and large corporations by allowing them to:
- Write-off financial crisis 2008-2009 losses against taxes paid on profits over prior years to generate massive tax refunds as well as arrest the trend in walking away from homes with HARP.
- A good example of how awesomely massive this was is that Wells Fargo earned $18 billion in tax credits for the Wachovia acquisition.
3) Mark to market accounting for credit instruments was suspended in April 2011.
The first quantitative easing program expired at the end of February 2010 and coincided with the near-collapse of Greece, the European financial system and, consequently, the the implosion of the entire global financial system. In the US, this manifested as the "Flash Crash" in May 2010.
These circumstances were overcome by 12 figure bailouts to Greek creditors, a second quantitative easing program that was announced on November 3, 2011 and the extension of the massive Federal deficit spending program and the introduction of "Operation Twist."
This money dump generated a spike in oil ($100+/bbl), gold ($1,900+) and silver ($47+) in 2011.
Higher prices are actually deflationary because they take away purchasing power from every consumer and DEFLATION is what the banking system is still, and will continue, fighting. So what happened next is we went after a party with a lot of oil, gold and silver that wasn't capable of defending themselves.
The European banking system was not recapitalized in 2008 and was given a small dose of recapitalization via the Greek bailouts, so they did a bigger recapitalization.
All of this, too, would prove to be insufficient and the yen carry trade was going to unwind, so the Bank of Japan ramped up its quantitative easing program and started buying up everything you could buy with yen.
Where we are at today is the logical outcome of propping up the financial system that has been used to organize the entire world since the post-World War II world's Yalta and Bretton Woods conferences as well as the Nixon Shock that was a default on the commitments made in those conferences.
What makes today's circumstances more challenging is that population has continued to grow while the labor market has continued to deteriorate due to technology advances. It is important to recognize that technology is DEFLATIONARY. Technology renders the old obsolete and over-priced. Lower prices means lower revenues, incomes and profits from the top all of the way down the income pyramid. However, owning massively deflationary technology (useful and in high demand) yields its owner(s) major windfalls because the competition doesn't exist and you only have to marginally reduce prices to conquer the old technology and its owners. Think of what Walmart did in the 1980s and 1990s through purchasing and logistics and what Amazon has taken to the next level since Y2K.
20,000 itself is not a magic number, but it can be marketed as such and people can be convinced it is a great thing. The problem with this is that perception (animal spirits) only matters to the markets if people have money to invest in the markets. Over the past eight years, the labor force has been transformed into a, largely, part-time <30 hours/week situation with low fixed-rate hourly wages. Investing requires having savings to speculate with and if you are having to spend as much as comes in, your bullishness about the market doesn't matter because you can only watch it on the teevee.
It is this SET of circumstances that created the social platform for a candidate like The Donald to legitimately WIN Executive Office of the United States of America. Looking at the world today, The Donald is pursuing a massive restructuring of the global economic system that was established post-World War II. It is important to recognize that the entire global system of government and economy has a financial statement problem that will have to be addressed. The ultimate problem is insoluble debt and, even more challenging, a potentially insoluble population problem.
Going forward, it is imperative to step back from the muddy waters and try to perceive the very big picture and its problems. Politicians a product of their constituents' problems and serious problems demand real solutions. Due to the seriousness and urgency of the world's problems, I believe it is fair to anticipate that interfering with prescribed solutions will not be met with patience or sympathy to all concerns.
As such, I urge everyone to make a serious effort to understand the big picture and its problems, while maintaining a humble spirit and appreciation that the problems are so great that no politician or government is going to have all the answers; the hope is that there will be enough reasonable answers. At best, I think we are just buying time no matter what actions are taken.
In the mean time, as long as total credit issuance - within an emphasis on the US Treasury continuing to run a deficit - is growing, one can expect for stocks to continue higher. Similarly, if the US Treasury were to run a balanced budget, one would anticipate for stocks to decline.