The Global «Fake News» Economy

Why is anyone surprised America has a «Fake News» President? After all, we already have a global fake economy and a fake stock market.

Charles Biderman

Deutsche Version

Charles Biderman

Charles Biderman founded TrimTabs Investment Research, a data service that tracked supply and demand of shares of stock and the money to buy them. On this basis, he also launched an Exchange Traded Fund in 2011. The current version is listed as TrimTabs Free Cash Flow ETF (TTAC-Bats). Biderman is regularly interviewed in the US financial media and began his career with the investor magazine «Barron's Financial Weekly». He lives on the Big Island of Hawaii and has recently launched the Hawi Plantation House Retreat.
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The United States has a president who lies, cheats and steals. Yet his cult like followers do not seem to care, and indeed most will not for as long as the stock market holds up.

He tweets made up news daily. And this consummate liar calls journalists who point out his made-up facts, «Fake News». In other words, like most sociopaths, he blames whomever points out his lies, which is why we have a «Fake News »President.

Let me be very clear: While I believe our president should be «locked up»; in no way am I a 2020 election supporter of the “new age socialists” who are advocating even more taxing and fake money creation to help the «poor». The only good that could come from even more government fake money printing and/or higher taxes is to speed up the eventual write-off of trillions in central bank created paper.

How have we devolved to this? In my opinion, we already had a fake global economy and a fake stock market since 2011. So why not a fake leader?

The Crash That Wasn't

History will be remorseless on the central bankers who ultimately have created this mess. It began with Japan. I started my stock market business of selling ideas to hedge funds on how to make money by recommending shorting both US and Japanese banks as well as the Japanese stock market in January 1990.

Prior to the early 90’s Japanese bust, the Japanese housing and stock market was in a straight up trajectory since the end of World War II. It had gotten to a point where Japanese banks would lend 100% or more of a property’s appraised value. One block of downtown Tokyo was valued at more than all of New York City.

Tokyo office rents had been soaring in the 1980s to such an extent that by 1990, new office construction was about to more than double the already existing class A office space. All – I repeat all – the major Japanese banks had at least 100% and as much as 300% of bank capital in real estate loans.

Therefore, I was projecting major bank failures all over Japan.

But guess what? While there were many, many major Japanese bank consolidations, there were no major bankruptcies, loan write-offs or any of the horrors I expected. Instead what Japan did, was paper over all the problems.

Japan created fake money to pay interest on loans with no value. Virtually no major borrower got wiped out, no bank officials went to jail, and bottom line the Japanese economy did not crash.

What did happen was a huge ton of fake money was created and added to Japanese balance sheets, both the banking industry and the central bank. Therefore, instead of starting with a much lower societal cost basis – a blank slate where the bad lenders went under and the bad borrowers went broke – Japan ended up with all the possible upside going to handle the repapered economy.

The result: The Japanese economy has had virtually no growth since 1990. Then the fake Japanese economy created a fake stock market. How? The Japanese central bank now not only owns most government bonds, but also a significant percentage of Japanese stocks via buying equity exchange traded funds (ETFs).

The Japanization of the World

The above is probably more than you ever wanted to know about Japan, but what is important is that the rest of the world followed Japan’s lead in handling economic downturns: Just paper them over.

In 2011, it looked to me as if Europe was on the verge of collapsing. In the PIGS countries, Portugal, Italy, Greece and Spain, banks were overloaded with bad debt that could not be repaid. Not only were the banks broke on a mark to market basis, the PIGS central banks had no way of refinancing their junk rated bonds.

Then the fake economy took over Europe in 2012 when ECB chief Mario Draghi (who will be called infamous by future historians) said he would do «whatever it takes» to save Europe.

What he did was to have the European Central Bank buy up all the bad loans held by governments and banks. In fact, they bought so many bonds, that almost all ECB member bond’s interest rates are below zero percent. Talk about Fake!

Let us not forget the fake economy and fake stock market here in the United States. The US called it Quantitative Easing, QE. The Federal Reserve created trillions of fake money that bailed out all the US banks that had no equity left in a mark to market world.

Why? The market value plunge of homes backed by bank loans had wiped out most big bank equity. In other words, similar to Japan and Europe, without central bank bailouts the biggest banks would have gone broke.

Remember, in 2009 QE was supposed to be a bridge over the recession valley. Except there is no way the US economy – nor the Japanese, nor the European – can generate enough cash flow to pay down all the fake money added to central bank balance sheets.

Then there is China. My former China born business associate reports that local Chinese governments used eminent domain to give farmland to developers and then gave their favored developers loans to build, build and build some more.

As even CBS 60 Minutes reported several years ago, China has trillions of dollar equivalent worth of bad real estate loans, i.e. property loans where cash flow is insufficient to service bank loans.

How to the Chinese make these loans good? By creating more money with which to service debts. In other words, in a mark to market real world, China is financially broke.

Bottom line: We have a Fake Global Economy.

The Biggest Bubble Ever

Without all those fake loans supporting marginal global businesses, we would be in a severe recession.

Not only do we have a fake global economy, we have a fake global stock market. We have the largest financial bubble ever.

Remember, a key tenet of my TrimTabs Liquidity Theory is that all there is in a stock market are shares of stock and money with which to buy stock. So when all Central Banks are creating more money – whether fake or real – chasing less shares, stock prices can only go up.

Global central banks have created around $9 trillion in fake money since 2011 and stocks are up $30 trillion. Stocks are much higher than they would be without all the fake money printing.

Historically, there has been a relationship between stock prices and cash flow. In the past, stocks were cheap when prices were less than what cash flow said was the private value of the company. At today’s prices very few global companies are worth the price they are trading at without central bank money printing.

I know where this has to end: At a major multi trillion financial catastrophe. The only question is when. Obviously, central banks and politicians all want the fake growth to continue until they leave office.

The good news: Eventually we are headed to a new dawn after the financial garbage created by the trillions of fake money is thrown out.

Underneath the fake economy and fake market is a vibrant surging social media-based infrastructure. I believe that those born with social media at hand will transform the planet similarly as my generation born with televisions in front of us changed our society.

Those of us born with television were taught to believe we are all equal, the good guys win and happily ever after is a realistic goal. Those born with social media at hand will create a world where each email or text address is equal to all others, regardless of race, religion, sex or anything else.

Their mantra will be «A World That Works For Everyone»– including the planet itself.