International Man: Recently, massive riots have broken out in many cities across the US.
Despite the unrest—and the economic damage from the shutdowns—the stock market continues to rally.
It seems that markets don’t reflect earnings, economic prosperity, or growth. What is going on here?
David Stockman: It’s quite simple. The Fed has unleashed the greatest torrent of liquidity ever, and it’s finding its way into a relentless, massive bid for risk assets.
Since the eve of the Lockdown Nation disaster on March 11, the Fed’s balance sheet has erupted from $4.3 trillion to nearly $7.2 trillion. That’s $32 billion per day—including weekends, Easter, and nationwide riot days.
Worse still, at their June meeting, the mad money printers domiciled in the Eccles Building promised to keep printing $120 billion per month to buy US Treasuries and other assets for an indefinite period. That should get us to a $10 trillion balance in less than two years’ time.
What this means, of course, is that honest price discovery in the canyons of Wall Street is deader than a doornail. We now have a putative capitalist economy in which the most important prices in all of capitalism—the prices of financial assets—are pegged, rigged, and manipulated by the central banking agents of the state.
The result, of course, is speculation and malinvestment on a biblical scale.
As to the former, we are now being treated to the preposterous spectacle of an IBO—or Initial Bankruptcy Offer—of the stock of bankrupt Hertz.
Hertz’s stock is worthless. It’s pinned under a pile of $20 billion of debt—senior debt securities, which are trading at 40 cents on the dollar—and a vastly overvalued fleet of vehicles.
All this is in a world in which airline and business travel has been crushed by more than 80% from trends and won’t be coming back any time soon—so long as Dr. Fauci and the Virus Patrol are stalking the land.
Yet the unhinged millennials—who idle their ample time and de minimis money on the Robinhood trading platform—have bid up Hertz’s post-chapter 11 stock price by more than 10X, thereby inducing a mainstream investment banking firm to propose underwriting a $1 billion stock offering in lieu of a debtor-in-possession (DIP) loan!