The global financial markets have transformed into a Potemkin Village. The equities arena is a counterfeit amphitheater with a foundation held together by a nubile mistress who controls the keys to the printing press, injecting stock exchanges with artificial stimulus that leads to superficial results. Trickle-down economics? The 21st century has already been a time of upside-down orthodoxy practiced by characters in Alice’s Adventures in Wonderland or a Franz Kafka novel. And this “whatever it takes” doctrine has been buoyed by central banks destined to calm the nerves of fragile traders with a euphoric soma-esque antidote of never-ending liquidity. What were acceptable practices of trading the market have become relics of a bygone era swept into the dustbins of history. Robinhood, YOLO, and unlimited quantitative easing – these are the strategies to make a buck on The Street.
How to Make a Fortune – Airbnb Style
Back in the good old days, investors would acquire shares of companies with strong balance sheets, shunning the firms hemorrhaging red ink faster than a hemophiliac related to Queen Victoria. Profits were a priority, and everything else was secondary. Today, the tables have turned as both Robinhood’s men in tights and Johnny Wall Street take advantage of ultra-low interest rates and mortgage the farm – or the Manhattan penthouse – on speculation, bailouts, SPACs, mergers, and easy money.
Case in point, Airbnb.
The vacation rental online marketplace company recently went public and stormed right out of the gate. Its initial public offering (IPO) price was $68, eventually soaring to $146 on the Nasdaq Composite Index after its debut. Shares quickly surged to $165 before traders enjoyed a rare moment of sanity and took profits early. But why all the buzz in the first place?
Airbnb admitted in its IPO filing that it “may not be able to achieve profitability,” only recording a handful of quarterly profits in its decade-long history. The coronavirus-induced lockdowns have made it harder for hosts to rent out their humble abodes and make money. A couple of market research firms have even downgraded the stock to “sell” or “underperform.”
But this has been the new normal for the last 20 years. As Liberty Nation has reported, most of the annual IPO classes are made up of unprofitable tickers that concede they will likely never make a cent.
It has gotten to a point in the financial colosseum that you do not even need to possess commercial operations or offer customers value. All you need is a mountain of investment capital. The special purpose acquisition company (SPAC), also known as a blank-check shell corporation, has been devised to take businesses public without venturing through the traditional IPO route. Goldman Sachs strategists forecast that SPACs may ignite $300 billion in merger-and-acquisition activity following a monster 2020.
You would think that the hippodrome, where about $200 billion are exchanged every day, is a house of cards waiting for the slightest touch to send the entire infrastructure crumbling. How can this mirage of sensibility ever be eradicated when the coquettish monetary inamorata has embarked upon a new crusade of never allowing the March bloodbath to be emulated ever again?
A Faustian Bargain
Since the dot-com bubble, the temptresses inside the Eccles Building have poisoned the souls on Wall Street. But these succubi are scattered throughout the world, from the Bank of Japan (BoJ) to the European Central Bank (ECB) to the Bank of England (BoE), preying on profit- and yield-starved institutional and retail investors. And the financial markets have made the Faustian bargain to abandon conventional key performance indicators in exchange for superficial numbers and developments.
It makes your job easier when you no longer need to comb through industry jargon, peruse tiny font, and calculate figures. All you need to know is if the Fed – or a central bank of your choosing – is accelerating the money-printing blitzkrieg or curtailing these expansive endeavors. With interest rates as low as they are, cheap money will perpetually be injected into the veins of hedge funds, money managers, and financial institutions.
But while it is low-hanging fruit to allude to the stock market’s love affair with easy dollars and cents, the philosophy of specious prosperity is shared in Washington and other corridors of power. With the Fed and its counterparts monetizing debts and deficits, politicians have bought into the illusion that you can have something for nothing and that the critical metrics, such as unfunded liabilities and bankruptcy rates in the marketplace, are nothing more than murmurs that can be ignored without being deaf.
And there is no going back. Fed chairs Alan Greenspan, Ben Bernanke, Janet Yellen, and Jerome Powell have permanently altered things, whether in the form of banker bailouts or QE4ever. Governments and markets will eternally extend their hands for assistance from the most powerful institution in the world until you can inflate no more.
‘We’re All Mad Here’
You have unprofitable companies making history. You have bankrupt retailers suddenly turning into the hottest stocks on the NYSE. You have blank-check firms earning billions. You have benchmark indexes hitting record highs, despite millions of people out of work and thousands of businesses shut down. What is going on here? How is this happening? You can give a round of applause to the neo-Keynesian monetary policy overlords for distorting the stock market and spiking the punch bowl with everlasting liquidity injections that intensify returns and insure against losses. Pardon the grammar, as the classic Doris Day jazz tune goes, but ain’t life grand?
Read more from Andrew Moran.