• February 26, 2024

The Era of Easy Money

A trader on the New York Stock Exchange last week.


Photo:

Courtney Crow / Zuma Press

The Federal Reserve has created more than $ 3.5 trillion since the Covid panic began, and all of that US dollars has to go somewhere. They seem to be going everywhere lately. Big companies, decent companies, weak companies with entertaining internet memes, and even companies that were started as jokes are now being funded.

Some highly valued assets combine the best elements of jokes and memes. Before his break-in on Tuesday, journalists Caitlin Ostroff and Caitlin McCabe reported on the spectacular rise of a particular asset:

A cryptocurrency created as a hoax became clearly visible on Wall Street Monday, and a 2021 Dogecoin yield spike was over 8,100% – more than double the profits of the S&P 500, including dividends, since 1988. Dogecoin went from a whimsical meme to a widely traded asset valued at about $ 50 billion – more than

Marriott International Inc.

or

Ford engine Co.

– is the latest act of financial alchemy, quickly moving individual investors who used access to royalty-free trading platforms and a wave of government stimulus money to transform markets over the past year. The rise of the cryptocurrency is reminiscent of

GameStop corps

Stunning progress earlier this year, an episode where traders who gathered on Reddit and other social media platforms turned a retailer into a superpower in the past.

Many individual investors naturally focus on the stock markets, but the debt markets were also flush with cash. “Banks are now competing with bond investors to find out who can give away the most money on the simplest possible terms,” ​​writes Brian Reynolds of Reynolds Strategy in a statement to customers on Tuesday. He does not see the end of the party anytime soon, arguing that “competition for lending will intensify due to record-breaking bank bond deals” and that “competition will likely lead to even stronger debt buybacks.” ”

How and when will it all end?

Last week Greenlight Capital’s hedge fund letter Investors were given the latest example of an amazing valuation in the stock market:

Somebody referred us to Hometown International (HWIN), which owns a single deli in rural New Jersey. The deli had sales of $ 21,772 in 2019 and only $ 13,976 in 2020 as it was closed from March to September due to COVID. HWIN reached a market cap of $ 113 million on February 8th. The largest shareholder is also the CEO / CFO / Treasurer and a director who also happens to be the high school wrestling trainer next to the deli. The pastrami must be amazing.

The CEO is really amazing Coaching wrestling but doesn’t seem to have much to say about the value of his pastrami. Another passage in the Greenlight letter could help explain the bold new thinking of Fed officials, who don’t seem too concerned about inflation risk as they continue to keep short-term lending rates near zero as they continue to create new money have expanded through the Fed balance sheet. Greenlight writes about the Fed:

Behind the curve, everything is fine on the way up, no matter how frothy the stock market the recovery is. Now it is said that it will only react to actual inflation that exceeds the 2% target for a period of time. In addition, the Fed has stated that it believes abnormally high inflation will be temporary. We wonder how the Fed will know this. Are there any price increases with a label that says “temporary”? We believe that no matter how hot inflation gets in the coming months, the Fed will continue with zero interest rates and big asset purchases. After all, the Treasury Department has a lot of debt to sell, and it’s not clear who can take the offer besides the Fed. The non-partisan idea that deficits don’t matter has even reached popular culture.

This column is old enough to remember when fiscal leaders thought inflation was a bad thing and that high debt was dangerous too. History says they will do it again.

Today, however, brings more news that the current Fed and White House must consider “temporary”. Sharon Terlep from the Journal Reports::

Procter & Gamble Co.

This fall, more will be charged for household clips from diapers to tampons, the newest and largest consumer goods company to announce price increases. The maker of Gillette razors and Tide laundry detergents cited rising costs for raw materials such as resin and pulp and higher costs for shipping goods. The announcement, which came when P&G released its quarterly results, follows a similar move by the rival last month

Kimberly-Clark Corp.

Isn’t it time to stop putting emergency funding into a cashless economy?

***.

James Freeman is the co-author of “The Cost: Trump, China, and American Revival.”

***.

Follow James Freeman on Twitter and Speak.

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To suggest articles, please email [email protected].

(Teresa Vozzo helps compile Best of the Web.)

***.

Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8



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