The Fed’s Job Is Done – Inflated Our Way Out of Debt

They say 2014 is the peak birth year with the most babies born ever 139 million of them screaming tots, 4.4 babies born per second to inherit the 111 trillion in debt we have in the world.

2014 will also be the first year after 27 years that Mount Everest will not be conquered as climbing has shut down after the tragedies of last month.

A spate of M&A deals in the markets is about to create extraordinary wealth as Astrazeneca is valued 20% above its pre announcement price.

All these premiums in stock prices are just part of the massive revaluation we have seen in global stock markets since quantitative easings around the world commenced.

Global market capitalisation of US 63 trillion (est) is higher than the last peak we saw in Oct 2007 despite the heavy stock buybacks that we are seeing which is matched with equally heavy IPOs.

Global Market Capitalisation

S&P 500 (1/3 of global market cap) stock buy backs and global IPOs are still trailing the 2007 highs.


Global IPO trend

Does the Fed really matter anymore ?

Not really.

Because markets are sitting comfortable on a nice little self perpetuating cycle.


Does the Fed’s paltry US 10 billion taper matter with a US 100 bio takeover of Astrazeneca ? which is a 20 bio profit for shareholders ?

Money and wealth is created that makes the taper look like peanut soup.

Companies find it easier to grow by acquisition because it is instant inflation for everyone.

Now, if we examine that poorly drawn diagram of mine, we would realise a few flaws in it.

1. That is, if anyone is not in the diagram, they would have lost out.

If you are not borrowing or issuing bonds to buy real estate, private equity and equity, there is little gain for you which is why the GINI ratios (rich poor divide) has gone ballistic all around the world and CEOs get rewarded with 350 times the average wage of their employees when it was about 30 times before the 80’s.

2. Investing in bonds will not make you rich because of the endless supply and poor hope of capital gains.

Table of Total Debt (bonds, loans, certificates etc) Issued Globally Including Govt Bonds

Back to the real reasons for investment : 1. growth/capital appreciation and 2. dividend returns/rental returns.

This is what the S&P 500 dividend chart looks like.

S&P 500 dividends trend

I do not have data on global rental yields, but REITs prices should be telling us that returns are not too hot as well.

Thus, it looks like we only have 1 reason in stock markets – capital gains. No wonder stock buy backs and M&A are in vogue. The “I buy you” and “You buy me” games.

And the world is fixated on the soaring white line of the stocks we follow, have we forgotten the earnings line now ?

Example of Pfizer stock price and earnings.


A world with sub standard earnings and low yields ? I suppose we cannot complain too much.

Keynes also said :

Markets can remain irrational a lot longer than you and I can remain solvent.

There is nothing so disastrous as a rational investment policy in an irrational world.