Stock market turmoil always feels sudden, but the root causes were brewing long before the final collapse takes place. Seeing the signs ahead of time – the proverbial “canary in the coal mine,” as they say – is the difference between novice traders and long-term successful investors.
What’s driving the major stock market indexes down in April 2022 isn’t just the crisis in Ukraine, though this will, like Covid-19, aggravate problems that already existed. If today’s investors should point to anything as the cause of the imminent collapse, it’s government print-and-spend policy and central bank malfeasance.
It’s not the retail traders or the meme stock pumpers that turned Wall Street into a casino, though the mainstream media is always glad to blame the little guy. If you’re thinking it was the corporate stock buybacks, M&A deals and other forms of financial engineering, you’re on the right track – but look deeper and ask yourself: Who permitted and encouraged this behavior?
By lowering interest rates to almost nothing, the U.S. Federal Reserve spurred an ultra-permissive lending and borrowing environment seemingly without limit or consequence. Big banks and the repo market got some hefty bailouts, courtesy of billions and billions of newly printed dollars.
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And so, short-term window dressing was prioritized over long-term viability as businesses piled their balance sheets sky-high. This, in turn, temporarily goosed share prices – great for corporate insiders, but the benefits never trickled down to Main Street America.
The upshot is a nation mired in debt, with 80% of households having no appreciable liquid savings or rainy-day funds. Sure, the Bureau of Labor Statistics will tout false employment numbers to assuage the pundits and economists, but the 8.5% annualized “inflation tax” hits everyone, and hard-working Americans always end up footing the bill in the end.
At no point did the average taxpayer approve of the U.S. government’s mounting debt, which has already surpassed $30 trillion and translates to $91,000 per citizen or $242,000 per taxpayer. The false fantasy of prosperity, the Fed’s promise of “transitory” inflation, the idea that governments can kick the can down the road forever – the lies are being exposed, calamitously, in 2022.
Even in the face of obvious cracks in the system, you’ll never get the truth out of central bankers. Just recently, Fed Chairman Jerome Powell declared, “Inflation may have peaked in March,” and that Fed is committed to getting the Consumer Price Index back to 2%.
And now, Powell and the Fed are going to move “expeditiously” on interest rates – and of course, stock market investors are in risk-off mode. Also, Powell suggested that “there’s something in the idea of front-end loading,” referring to the ending of years of easy money policy.
It didn’t happen overnight, but rampant government money printing and suppressed bond yields since the Great Recession are finally leading to a slow-motion car crash in the markets. The bigger they are, the harder they fall – and the companies with the most bloated, artificially inflated valuations carry the greatest risk now.
It’s a shame as many Americans are invested in over-valued stocks right now whether they know it or not, as retirement fund managers piled into market-cap-weighted indexes and hoped for the best. But then, hope isn’t a viable investment strategy and the Fed just basically told everyone to expect a rough landing this year.
Going forward, the markets will remain sensitive to external shocks, including energy inflation resulting from geopolitical crisis. Don’t let the mainstream media distract you from the main problem, though: our elected and non-elected “leaders” caused this problem, and the ensuing collapse will hit Wall Street hard and Main Street even harder.
Chief Editor, CrushTheStreet.com
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