...the banking industry tied OMFIF's recent report on 'Global Public Investors' found that central banks and other large public sector institutions account for a staggering $29 trillion of investments in the markets, involving ownership of assets equivalent to 40% of world output.
You know there's something wrong with the market when even a mainstream site like MarketWatch is using the news of the Dow Jones breaking the iconic 17,000 mark not as a cause for celebration but as a time of sober reflection on the detachment of the market from economic reality. As Dave Weidner points out in a peculiarly downbeat piece (illustrated by a large down red arrow over an image of a red stock ticker), over the last five years we have seen the fourth largest bull market since the 1929 crash not because of a booming economy but precisely in the absence of such economic growth. As the piece argues: “[The market] is being driven higher by just a few wealthy participants and traders who have tacitly, perhaps even unknowingly, agreed to drive prices higher.”
This is, of course, precisely what Bob Chapman, the Forecaster, and many in the alternative media have been saying since the Fed began their funny money quantitative gravy train in the wake of the Lehman collapse. Now the truth is undeniable, and, increasingly, undenied by even the most conservative of commentators. As we pointed out in these pages recently, the banking industry tied OMFIF's recent report on “Global Public Investors” found that central banks and other large public sector institutions account for a staggering $29 trillion of investments in the markets, involving ownership of assets equivalent to 40% of world output. As that report concludes, there is no escaping the fact that we are living in an era of state capitalism (that's crony capitalism to you and me) and that these public sector investors “may” (may?) be responsible for overheating equities markets.
In a sense you could say that QE has been a great success. The government got exactly what it wanted: a continuation of growth and good times for those at the very top of this system closest to the institutional investors who are causing the current bull run. For everyone else, the news is not so good. Wolf Richter points to a telling statistic in a new blog post showing a large and growing divergence in consumer confidence between those above the dividing line of the middle class ($50,000 per year), who are increasingly returning to pre-Lehman optimism, and those below that threshold, who have barely recovered from the housing bust. As Richter notes, this is the entire point of the QE strategy. After all, the upper half of that divide accounts for 2/3 of all consumer spending, so as long as they're happy the economy is happy. And the suffering of those on the bottom? Economically irrelevant.
Of course even for the would-be legends-in-their-own-minds at the Fed have to realize that their castles of sand are going to be dissolved when the tide comes in. If Dow 17,000 with no significant economic or labor recovery was really such a great thing, why not just keep the gravy train going? Why not Dow 170,000? 1,700,000? 17,000,000? Wouldn't that mean that things were really great?
Of course it wouldn't. And that's why we are seeing the bizarre spectacle of mainstream analysts turning somber at the sight of a market hitting a record high. Here at the Forecaster, meanwhile, we'll continue telling it to you straight, and helping you to prepare your wealth for the second round of the Great Destruction that the Fed is priming us for.