Buy The Tumor, Sell The News
The comments below are an edited and abridged synopsis of an article by Charles Hugh Smith
‘Buy the tumor, sell the news’ describes the past 20 years of ‘buy the dip because the Fed has our back,’ the certainty that the Fed will never let the stock market decline to fair value, because that would reduce the wealth of the Fed’s cronies: the banks, corporate cartels, the wealthiest families that own much of the stock market, and all those profiteering from various rackets and scams.
The system’s dependence on asset bubbles in stocks and housing to generate the wealth effect that drives consumption defines Fed policy, along with the need to keep stock-dependent pension funds and liquidity-dependent zombie corporations solvent.
That the Fed’s pimping of asset bubbles and liquidity has created the greatest wealth inequality in a century is ignored by the political/financial leadership, because the wealth asymmetry has enriched leaders, their cronies and the army of flunkies who work to keep the rackets functioning.
All this wealth isn’t earned via the creation of value; it is skimmed from the bottom 95% via high costs, junk fees, penalties, interest rates and taxes, all set by monopolies and cartels with no competition, accountability or transparency.
Management runs the company into the ground with stock buybacks funded by junk bonds, and the Fed and Uncle Sam will bail them out. This is moral hazard: fraud, embezzlement, profiteering and cartel rackets have no consequences.
The message? Go ahead and game the system to maximize your private gain; the Fed and Treasury will bail you out by transferring the losses to taxpayers and the bottomless pit of the Fed balance sheet.
Meanwhile, stocks have completely disconnected from the real world of goods, services, revenues and real profits.
The fictitious valuation of the stock market will eventually reconnect with reality in a violent decline. The Fed being all-powerful is like the emperor’s new clothes: No one mentions that the emperor is naked, and the Fed cannot keep stocks separated from reality forever.
The day of reckoning draws near, and the true costs of moral hazard, Fed pimping and a systemic dependence on the lethal tumor of a stock market that is no longer a market will be exacted from the financial system and the economy.