S&P 3000: The Reality Behind the Criminal Record

James West

So…for the bulls out there who are fond of drawing connective correlations between corporate performance in America and the S&P 500’s relentless velocity through 3,000, let us examine the exact nature of the fecund explosion in growth.

From where I sit, the S&P 500 is the gauge of the fraud being perpetuated on citizens (you and me) by the Fed and central banks everywhere.

For clarity, The United States Federal Reserve is the principle institution through which Americans and everyone else is being defrauded by the financial elite.

Our governments work primarily against us and for major elite financial interests, who are the perennial financiers of this fraudulent banking system that enslaves consumers with debt and then undermines the purchasing power of the currency with dilutive debasement.

How the Fed is defrauding you

The basis of the fraud is best categorized in the terms of a famous “con” or “grift” called  The Come-Along.

In this classic foil of con-artists throughout history, the idea is get the “mark” to agree to participate in a grift against someone else (who is invariably played by one of the cons). The mark thinks he is a minor player in a sting against a villain who “deserves it”, for which he will be handsomely compensated.

The outcome of the con is always that the cons take everything of value from the mark, who is then dissuaded from reporting the crime to the police because he will have to disclose that he is complicit.

In the long con of the Fed, the public is the mark, and they are duped into accepting  the “Quantitative Easing” or the rampant printing of currency which accrues to the top layer of the financial food chain for the most part, while the public is complacent because it sees record stock market performance and low inflation reported.

Things must be all good! (That’s exactly what the perception engineers at the Fed and Treasury want you to think; if you’re not participating in the economic Mardi Gras the data is showing, there’s something wrong with YOU.)

This has been going on for over ten years, and is now accelerating.

Accelerating toward what?

Toward the new “biggest financial crisis the world has ever seen”.

That’s because the inherent problem with ZIRP and QE is that they create fundamentally unsustainable economic dependencies much like a spiralling-out-of-control addiction; the economic indicators require ever-accelerating QE, ZIRP, and fractional banking that this fraud is compounding exponentially each year.

With bankers and elite financial operators siphoning off the lion’s share of a) the fabricated Tier 1 capital via Quantitative Easing, and b) the resulting multiplied-by-a-factor-of-at-least-10 “fractional banked” cash pool, there is actually very little, if any, investment going into actual economic activity and job growth.

That means in order to massage the data to continuously reflect false growth in S&P, jobs and corporate earnings, the Fed must maintain a consistently low interest rate that induces borrowing activity by corporations to buy back their shares, while at the same time serving the parallel requirement that the $20 trillion federal debt continues to build under the illusion of being a serviceable, realistic number.

But “realistic” in the elite financial layer and down here on Main Street have opposite meanings. To the Fed, it means anything they can shove down the public’s throat cloaked as “data”. To you an me, realistic means living within one’s means.

Consider that share buybacks relative to free cash flow in corporate America topped 104 percent for the first time in Q1 2019, meaning that companies spent more buying their shares than they made from business activity. That number at the end of 2018 was 84%.The total volume of share purchases in 2019, furthermore, is expected to top $1 trillion.  All this according to Goldman Sachs.

Most companies are using debt to buy back their shares. Why? Because share buybacks create an inherent share price lift by reducing the amount of dilution that profits are divided by. Share buybacks make dividends more robust and stable, and make shareholders more loyal.

But the ability to buy back shares is a direct result of one thing and one thing only: extremely accommodating Fed policy.

Since the financial crisis of 2008, the Fed has pumped over $4.5 trillion into the global economy. But its not just the Fed.

China, Japan, the UK and the Eurozone have all combined “Quantitative Easing”, or government-sponsored check-kiting, with near-Zero Interest Rate Policy to effectively subsidize the entire corporate world by somewhere in the neighbourhood of over $20 trillion. (What a coincidence! The same amount as the debt owed by the United States to its creditors!)

But here’s where the whole scam is running into a brick wall: The lower the interest rates, the less banks make in interest. Therefore the more QE and ZIRP the government must roll out to induce the banks’ continued participation.

JP Morgan Opts for Extortion

Behind closed doors, the likes of JP Morgan’s Jamie Dimon pressures government officials and Fed governors to enact policies that favour banks and their ability to generate profit for their shareholders (the 1 percent again!). The Fed is run bey economists who are not trained to lead or negotiate – they are trained to populate balance sheets and develop mathematical models to describe what could happen based on what already happened. They spend all of their time looking backward in an effort to understand what is coming from ahead. Lambs to the slaughter, for the likes of Dimon.

That’s why, as resistance Dimon and the cabal of bankers he represents grew to increasing interest rates, they decided to show the Fed who was really in charge of the world’s monetary policy.

The “repo” market, as the overnight lending window operated by the NY Fed is called, is where corporations go to get overnight cash required to reconcile their books and stay current in their operating obligations. The cash that is doled out from this “window” is provided by the Primary Dealers who are mandated by law to, among other things, buy the Fed’s bonds, which it creates to send cash to the Treasury. Net of fees and expenses, of course.

The New York Fed provides the illusion of a third party clearing agency that clears the bonds sold to the Fed on an overnight basis for re-purchase the following day. This is ostensibly to provide the cash required by commercial banks and other borrowers.

Anyway, the Primary Dealers led by JP Morgan elected to withhold their cash and force the Fed to conduct a series of unconventional reverse reverse repo operations to essentially fund the overnight facility with their own cash, thereby revealing decisively the reality that the Fed gets its marching orders from the banks it ostensibly regulates.

The Recession Has Already Started

Despite the S&P 500 setting ever higher new records, the bottom line is the United States and the rest of the world are knee-deep into a major economic contraction, and the only way to protect yourself is to selectively trade in and out of high impact situations. The how and the what is the art in this, and that we reserve for paying subscribers.

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James West

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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