Got a funny feeling we're gonna look back on this quote one day in the future and say, Bingo:
Most of the rally in the stock market since 2009 can be chalked up to the Federal Reserve’s attempt to create a ‘wealth effect’ through higher stock market prices. This only exacerbates the downside risk. Why? The stock market is no longer a lead indicator for the economy. It is instead reflecting Fed manipulation. Pushing the stock market higher while the real economy languishes has resulted in another bubble. (Emphasis added.)
This was something that first crossed my mind not longer after the 1987 stock crash: Namely, that the stock market---and probably the equities markets in general---has become almost completely uncoupled from the regular productive economy since it's now dominated not by individual investors who hold onto their stocks for months or years in search of steady long-term growth, but by institutional rent-seekers who buy and flip stocks in a matter of nanoseconds in the pursuit of billions of pennies and nickels per day. And most of the money that our central bank has pumped back into the financial system via various QE twists has only served to recapitalize the rent-seekers, not the rent-payers (i.e., you and me, and the enterprises we work for and patronize), so that the valuation of stocks/equities nowadays only reflects only how much play money our speculator class has to plow into them, and little else. It's also (among other things) a reason why we can be seeing all these awesome increases in productivity and profits while so many of the underlying fundamentals (real wages and household net worth, for example) still suck. Regardless, this presentation confirms what many of us have feared all along---that the systemic origins of the banking meltdown have only been addressed indirectly, and even then in small part, and that it will take an even bigger disaster before our political leadership decides it's time to get serious about breaking up and rebuilding our unsalvageable financial system. Would love to be proved wrong here, but I am guessing, well, not.
---Baron V