Chair Powell Is A Softy

The Fed is the perfect scapegoat. They control our money supply. Thinking about our monetary system is enough to make your head spin to begin with. But any time you want to borrow money, it feels like The Fed is all that matters. Even though there are dozens of criteria that go into the decision about whether or not to lend you money notwithstanding all the criteria you ought to have for yourself before taking money.

Today the Federal Reserve raised rates by another 75 basis points. Naturally, people on Wall Street are complaining about it. They are acting like this is a personal affront to their business, because it is. Forget about the housing market for just a second because if you really dig into it, nobody cares that they can’t buy a house to live in right now. A vast majority of the housing builds & buys of the last 3 years were from investors & developers working together to inflate the valuation of their sector synthetically.

The Invisible Debt Crisis That Terrifies Everyday Americans

People took out additional, unnecessary mortgages, bought properties with money that they didn’t actually have as collateral (due to their market gains from COVID mania), and they are seeing the metaphorical chickens coming home to roost now. They can’t afford to invest more money or borrow more money, because lenders are getting more skittish. Also, so many people joined in the same financial schemes they forget that eventually somebody has to pull out to collect on the pool of investment. But what people fear is something they won’t say. You will hear and see a lot of data about interest rates, and the housing market right now.

What you have not heard anybody talk about is: margin calls.

Those pesky emails or phone calls you get from your broker telling you that they need to collect on some of the money you borrowed from them to buy all those hot blue chip stocks that have now tanked 30% or 70% or 90% of their value. All those NASDAQ stocks for example. You can easily see that people are trying to take gains out of the tech sector and dump it into the Dow, where they are also finding soft interest for equity in companies. Why? Because nearly all public companies have lost all trust.

The Dow is down over 11% this year. But that is only half the story: literally.

The average interest on margin loans to buy stock is about 10% too. That means even if there was a tremendous rally by the end of the year where the Dow gained all of these losses back, it would be a 0. Adding inflation on top of that, and it is decidedly negative.

Another 40% Must Shed From Major Indexes Before Things Calm Down

All that is left to be done is to dismantle any company weighing these indexes down with their fraud, waste, and abuse. That needs to happen long before anybody should believe executives at these failing companies (like META) who claim to have long-term plans that make no sense today. It doesn’t matter how isolated a company thinks they are, or how few competitors they believe they have. The last 3 years should show you that the world can be brought to its knees pretty easily as it currently stands.

We collectively need to sure up our defenses against another possible economic tidal wave. People need to stop being enamored by the idea of making it rich during a crash and recognize that long-term strategies where competition thrives is better than a synthetic bull market controlled by thin-skinned bean counters using algorithms.

No matter what position you are in, blaming the Fed for doing what they have to do is masochistic. You aren’t helping yourself, your clients, or the general public by acting like a spoiled brat for your allowance being taken away and getting forced to finally earn your keep in this world. Cheap credit is a luxury, not a right. Deal with it.

Time To Get (Back) To Work

How about instead of crying about the loss of margin borrowing or valueless website IPO’s going away, you focus on finding the few companies which should last, and dedicate some time or energy to making sure they do. Ownership is a lot more than simply buying shares or having your retirement account passively managed. Not until we have a fair market again.

The Fed is trying to pitch in to correct the market. The public needs to learn how to do business that is going to last another 25 years, not 2.5 years. We all deserve to have a future, and blaming the Fed does not get us that. Blaming the Fed is so short term. Don’t fight the fed. Rip the faces off of all the bloated public stocks.

Once the market has fallen to where it really is, we can all rebuild again.