Tuesday, May 07, 2013

New Phony Fed Stimulus Financial Paradigm = Deflation Not Inflation

Fed Stimulus = Long Term Deflation Not Inflation 

The Fed has created another bubble that will likely pop but this time all the hedge funds are all long the market and not short.  Is the business environment REALLY getting any better with all the Fed Stimulus, QE1, QE2 or QE3?  Not really if you ask me and it has created a phony sense of reality with the over inflated equity markets.  Historically, investors would value buying stocks based on that company making money.  Today, investors are making stock purchasing decisions based on liquidity, yield and price action.  The Fed wants investors to chase equities and bonds higher so we feel wealthy and spend more.  But their intentions to create inflation could have the opposite effect on those who actually create the jobs and invest.  

Sustainable jobs are created through organic growth and Venture Capital.  It is not the job of Government to decide which industries succeed or fail.  Our latest Fed policy has created a false sense of safety and has indirectly propped up businesses that historically would be failing.  Business failure is actually a good thing for a capitalism and for investment because it moves people and money to new areas which we call the business cycle.  It also allows the leaders to succeed more quickly by flushing out the weak competition.  Flushing out crappy businesses in crowded industries is what our economy is lacking right now and thus why businesses are not seeing any benefits other than low interest rates.  

Most industries are not experiencing earnings and revenue increases as quickly as the stock market leads us to believe.  There are exceptions like real estate but for the most part industries are suffering from the lack of organic investment and job creation.  If we had normal business cycles we might actually experience inflation in business and wages.  We are not seeing that right now because most of the billionaires don't want to invest  for the long term when they know it could come all crashing down.  How about giving some money to the Venture Capital industry that creates jobs?  Read this previous article we wrote back in 2010.   How about some QE for the Venture Capital industry that is actually shrinking?  



Popular Posts