Building a Reg A+ Profit Ladder

James West
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The S&P 500 is on a tear again. At what point does this index of stocks subsidized by Quantitative Easing and Zero Interest Rate Policy reverse course and head back to correction territory?

The answer is not any time soon. Why?

Despite the incessant predictions of vaunted names in capital markets, a stock market collapse simply can’t happen as long as governments are fabricating capital and capping interest rates at negligible levels.

If the value of new money into the system is fractionally banked out into a conservatively 10x value, the €20 billion per month in Tier One capital (which government debt is categorized as) means any buyer of such debt (banks) can lend out a multiple of that figure to non-Primary banks (those eligible to participate in government debt auctions) at a Bank of International Settlements (the Central Bank for Central Banks) of at least 8:1.

In other words, they can lend out at least $8 for every $1 of Tier One capital (government bonds) they retain in their asset base. But where it gets really mind-boggling is when these 2nd tier banks borrow from Tier 1 banks, and then lend money to Tier 3,4,5 and 6 customers with the same ratio of reserves to debt governing their lending ability.

As long as nobody calls in their debt, the entire house of cards builds higher and higher.

So one day, it will all come crashing down. And that’s why investors smug in the delusion that their S&P 500 stakes that have been reliably notching gains since the Great Recession are in fact at huge risk of giving it all back.

If the S&P since 2009 has been built on a never-ending stream of government-fabricated cash – which is debt for future generations – then at some point, there has to be a reckoning.

Which is why your exposure to publicly traded markets is best reeled in, if you want to protect your wealth.

Reg A+ Changes Everything

As has become a bit of theme of ours in 2019, and is going to become the theme of 2020, Regulation A+ issuers are going to be the safest place for investors, in my opinion.

With the total disintermediation of the entire capital markets layer of the ecosystem – what I call the “value destruction” layer, investors are going to able to align their capital directly with companies, and have ZERO risk of their company’s value being determined by bunch of short bandits, or scalpers, or investment bankers only interested in recycling capital for fees and free stock a maximum frequency.

This is not to suggest that every single Reg A+ issuer is going to be successful.

Far from it. Many will fail completely. Most will struggle to hit the right tone to catalyze a viral response to their Reg A+ offer.

But for those who get it just right, Reg A+ becomes a private market for an issuer to raise capital from its investors, while facilitating liquidity to those investors in a private setting only open to individuals the company approves.

This is the principle difference.

In the public market, anybody place bids for stock (even though they might have no intention or even ability to follow through) or offers for stock (even though they might not even have any) in unregulated volumes that cause investors to see markets distorted by fake orders and volumes of interest.

Its a state of institutionalized predation sanctioned by regulators under the thumb of the biggest capital pools.

And that’s why Reg A+ is going to be a relative safe haven for issuers and their investors in no hurry to see their company publicly traded, and exposed to such a cesspit of vipers.

 

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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