Conservative Ben Shapiro actually said something I agree with and
it has to do with the economy.
But before we get to that,
I think it's important to break down the context in this story and
understand what's currently happening in the US economy and in the markets.
So if you are in any way invested in the markets, you'll probably notice that
there's some volatility happening, the markets are down.
And what's causing that?
Well, it has a lot to do with the Federal Reserve and
a recent announcement by Jerome Powell.
It has a lot to do with the interest rates associated with loans.
So let me give you those details.
The Federal Reserve has kept interest rates on borrowing pretty low for
a very long time.
Part of the reason why they've done this is to stimulate the economy,
especially during the pandemic.
The thinking was, well, let's make lending cheaper.
It'll provide more liquidity to private equity firms into big banks.
And the thinking was that that money would kind of trickle down to the ordinary
American.
Now, of course, it didn't trickle down.
I've talked about this a million times before and
what it really led to was inflation for various assets.
Whether we're talking about the value of shares in the stock market or
more importantly, if you ask me what we've seen in the housing market.
Private equity firms have decided to take advantage of that cheap
money they borrow and what do they do with the money?
They just invest in real estate.
They literally buy up entire neighborhoods and turn those single family homes
into rentals just so they can become the latest slumlords.
We've gotten into that story many times before.
Now, Jerome Powell, head of the Federal Reserve,
signaled that he and his colleagues are likely to begin raising rates in March.
Raising interest rates would not solve the supply chain woes which also
are leading to inflation, but is intended to tamp down consumer demand.
So the thinking is, if you limit the money available by increasing
the interest rates associated with borrowing that money,
well, it'll help lower what we're seeing in terms of inflation.
The Fed is expected to gradually begin shrinking its portfolio of government debt
and mortgage backed securities later this year as well.
Doing so is another way to fight inflation by pushing up long term borrowing
costs across the economy.
Now again, low interest rates has really mostly benefited people at the very top.
Like of course banks and private equity firms are gonna take that money and
find a way to invest it in order to get the highest possible return on that
investment and real estate has been a huge part of that.
That's why even though we've seen economic pain and suffering for a lot
of people during the pandemic, wasn't really reflected in the housing market.
We saw this insane inflation in single family homes.
Now, Ben Shapiro of all people talked about this,
this was a few months ago, I just came across the video recently, but
what he says here is so accurate, it blows my mind.
>> So let's, let's watch, you're seeing people get ticked off at corporations for
doing what exactly it is that they do,
which is they see a cheap debt instrument available to them.
And they immediately start taking out loans and then buying up hard assets.
And then people get angry at the corporations for this.
You're getting angry at the wrong people.
I may not like it either.
But the point is that unless you stop the Federal Reserve from pumping money into
the system, corporations are going to take cheap loans and
then they're going to use those loans to arbitrage.
They're going to take the loans at 0%, and then they're either gonna lend it out of
3% or they're gonna go buy hard assets they think
are going to appreciate at 3% or more over the course of the next 50 years.
>> He's right about that.
Now, he made that argument with,
there was a preface there that I didn't include in the video.
He said you shouldn't be mad at Black Rock.
And his argument is, and he said it in the video,
you shouldn't be mad at corporations for doing what corporations do.
I actually really appreciated that admission from Ben Shapiro,
because that admission makes it abundantly clear that corporations have one thing and
one thing only in mind maximize profits.
So in this case they took the cheap money from the Fed and
they invested it in a way that would have the highest returns.
Buy up single family homes, turned them into rentals and
ensure that the insanely limited inventory for
housing in this country is limited further by this behavior.
But as Ben Shapiro says, corporations are gonna do what corporations do.
That's how the system works, right?
And again, I appreciate that admission.
But the second part of that, which is also accurate is that
the Federal Reserve just kept pumping money into the economy and corporations
did with it what they're gonna do, invest in these hard assets like real estate.
And that drives up the price.
So now with the Federal Reserve announcing that they are going to slowly but
surely increase the interest rate associated with borrowing the markets
have noticeably shown some changes.
So let's take a quick look at the S&P 500.
This is over the last month.
You can see that pretty significant dip in the markets and
it's because that cheap money ain't gonna be as easy to come by.
And they not only use that money to invest in real estate.
What do corporations also invest in when they get access to cheap money?
Yeah, that's right stock buybacks.
So the market is reflecting the fact that, Damn, looks like corporations
are gonna be able to do the corporate stock buybacks, especially to the extent
that they've been doing it during the pandemic, during the pandemic.
So let's take a look at some of these graphics.
So at nearly 850 billion, total buyback volume for
2021 would exceed the record $806 billion 2018.
So we've talked about corporate stock buybacks before.
But let me just remind you all what that is.
It's when companies executives for
any given corporation decide to take money and buy shares of their
own stock to artificially inflate the value of the stock.
Now, when we think about how the economy works.
Oftentimes we think about it in the form of supply and demand,
right there are consumers, consumers like a product, they buy,
the product that makes the company successful.
You see the share values increase as a result of that consumer activity.
But what the Federal Reserve has done is essentially
allowed these corporations to cut the consumers out of the equation.
Who cares about the consumers.
We can just take the cheap money from the Federal Reserve and
pump up the value of our stocks and that's what they're doing to pump up the volume.
That's what they're doing all the time.
It was certainly happening prior to the pandemic, but
it accelerated during the pandemic thanks to the Federal Reserve,
under the leadership of Jerome Powell, who has been reappointed by Joe Biden.
Remember Jerome Powell was the Fed chair under the Trump administration.
But as we know,
Biden seems to really favor a lot of the behavior of the trump administration.
He's continuing on with the same immigration policy, refusing to accept
asylum seekers at the border, noting that the pandemic is the reason why.
And he's bringing in the same goons who made awful decisions
at the Federal Reserve.
So let's take a look at the S&P 500 stock buybacks.
Okay, just how much they have accelerated over the last two years.
So if you look at the quarter one of 2020,
you have $199 billion dollars in stock buybacks.
Quarter to not as many.
Not as much I should say that was when the economy certainly took a hit as
a result of the pandemic.
But once you get to the fourth quarter of 2021,
$238 billion dollars in corporate stock buybacks.
The bulk of buybacks are concentrated by the way in a small group of companies,
the top five accounted for almost 30% of the buybacks in the third quarter.
Four of the five are.
Wow. Technology companies who would have seen
that coming.
Apple spent $20.4 billion for instance on stock buybacks.
Then you have meta platforms, Facebook $15 billion, Alphabet $12.6 billion.
Bank of America $9.9 billion, Oracle $8.8 billion.
And again, emboldened by cheap money.
And by the way, when you take a look at what happened during the Great Depression,
what was happening is people were borrowing money to invest in the stock
market and then when the stock market crashed, people were in trouble.
So I'm just curious how over leveraged are these companies?
And if they're over leveraged and all of a sudden they're in trouble,
are they going to ask the federal government for help?
Are they gonna ask for a buyback?
My guess is they will.
And considering the fact that our government is completely captured by
corporate interests, they'll give him the bailout.
We've seen it happen before.
Why wouldn't they do it again?
Who's going to stop them?
Unorganized people who have absolutely no power.
Just something to keep in mind when we're considering strategies and,
and ways to actually hold our government accountable?
We can keep electing people that we think are gonna help us out.
But I'm kind of tired at this point of being disappointed.
We need to have a robust, well organized outside strategy