QE-Driven Accelerating Capital Flows into FAANGs is the Black Hole of Capital
The paradox is great and widening fast: the S&P 500 continues to set daily records (most days) while industries in need of capital to grow are dying on the vine. I’m not just talking about cannabis – mining, energy, transportation, bio-tech, and materials engineering are all segments of the market where capital has dried up.
Like the real world black hole, no dollars can escape the gravitational pull of the relentless advance of the FAANG driven S&P500 stocks.
Secondarily, the passive asset classes crowded with ETFs and Index Funds that track – you guessed it – FAANG stocks are hoovering up more risk-averse capital thanks to their lower volatility and consistent value appreciation.
So where does this leave industries that need capital to replace their sold product, or to remain or become competitive with global industry incumbents?
It leaves them out in the cold. Today its -27 degrees with wind chill in Toronto, and that deep freeze is echoed visually in the performance of the TSX Venture index in Canada, home to a majority of development stage companies.
China’s Shenzen Stock Exchange outperformed even the NASDAQ and S&P500 in 2019, while the S&P/TSX Venture Composite Index came in sucking hind teat with a feeble 1.2 percent gain…not even above the rate of inflation.
While investors migrate en masse away from investing in new companies and shrug off the absence of performance that is the direct outcome of capital starvation, the longer term effects are worth considering.
Look at you children enjoying their breakfast cereal and ask yourself if you’ll be content that the only jobs that will be open to them will be at Facebook, Amazon, Apple, Netflix, Google, and Tesla. And the competition for those jobs will be extreme to say the least.
We like to think of ourselves as somewhat visionary and able to shape our futures with our collective intelligence and cooperation. In the markets, it’s only those who are able to capture and utilize money derived from Quantitative Easing or family legacy wealth or pension fund wealth who get to ride that FAANG bull day in and day out.
Those largest traditional sources of risk capital to develop new companies are no longer interested in risking capital, because their fiduciary duty is to seek out the best performance.
Can you believe the total amount of capital invested in Canada’s publicly traded companies on the TSX and TSX Venture totaled a measly $39 billion for all of 2019? Tesla, by contrast, traded US$57 billion worth of stock in a single day.
The powers that be behind the curtain in the central banks and treasury departments who collude to keep the flood of counterfeit money propping up valuations and performance in the top asset classes are fully cognizant of this effect, but don’t care. The market is there to transfer wealth to those who control it from whose who naively wade into the deep end.
Government is too stupid and powerless to have the long term interests of the electorate at heart. They corruptly bend to the buck when summoned, and our slowly dying economies are the casualties.
If you ask me, Canada’s obsession with pipelines and oil sands demonstrates in no uncertain terms governments’ total disconnect from reality as it pertains to the future of evolving global economic competitiveness. Until we the intellectual bench strength in Ottawa to understand that the US dollar is being deployed as a weapon to defraud the rest of the world and gut our economies, there is zero chance of our long term economic viability in any other form other than a subsidiary of the United States.
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