How MAGAnomic Policy is Interacting With Wall Street – Financial Systems and Investment Winners/Losers…

President Trump’s MAGAnomic and foreign policy agenda is jaw-dropping in scale, scope and consequence. There are multiple simultaneous aspects to each policy objective; they have been outlined for a long time even before the election victory in November ’16.

If you get too far into the weeds the larger picture can be lost. CTH objective is to continue pointing focus toward the larger horizon, and then at specific inflection points to dive into the topic and explain how each moment is connected to the larger strategy.

Today we dive into how MAGAnomic policy interacts with Wall Street, the stock market, the U.S. financial system and perhaps your personal financial value.  Again, the ongoing reference and source material is included at the end of the outline.

If you understand the basic elements behind the new dimension in American economics, you already understand how three decades of DC legislative and regulatory policy was structured to benefit Wall Street and not Main Street.   The intentional shift in fiscal policy is what created the distance between two entirely divergent economic engines.

REMEMBER […]  there had to be a point where the value of the second economy (Wall Street) surpassed the value of the first economy (Main Street).

Investments, and the bets therein, needed to expand outside of the USA. hence, globalist investing.

However, a second more consequential aspect happened simultaneously.  The politicians became more valuable to the Wall Street team than the Main Street team;  and Wall Street had deeper pockets because their economy was now larger.

As a consequence Wall Street started funding political candidates and asking for legislation that benefited their interests.

When Main Street was purchasing the legislative influence the outcomes were beneficial to Main Street, and by direct attachment those outcomes also benefited the average American inside the real economy.

When Wall Street began purchasing the legislative influence, the outcomes therein became beneficial to Wall Street. Those benefits are detached from improving the livelihoods of main street Americans because the benefits are “global” needs. Global financial interests, investment interests, are now the primary filter through which the DC legislative outcomes are considered.

There is a natural disconnect. (more)

As an outcome of national financial policy blending commercial banking with institutional investment banking something happened on Wall Street that few understand.  If you take the time to understand what happened you can understand why the Stock Market grew and what risks exist today as the financial policy is reversed to benefit Main Street.

President Trump and Treasury Secretary Mnuchin have already begun assembling a new banking system.

Instead of attempting to put Glass-Stegal regulations back into massive banking systems, the Trump administration is creating a parallel financial system of commercial banks, credit unions and traditional lenders who can operate to the benefit of Main Street without the burdensome regulation of the mega-banks and multinationals. This really is one of the more brilliant solutions to work around a uniquely American economic problem.

♦ When U.S. banks were allowed to merge their investment divisions with their commercial banking operations (the removal of Glass Stegal) something changed on Wall Street.

Companies who are evaluated based on their financial results, profits and losses, remained in their traditional role as traded stocks on the U.S. Stock Market and were evaluated accordingly.  However, over time investment instruments -which are secondary to actual company results- created a sub-set within Wall Street that detached from actual bottom line company results.

The resulting secondary financial market system was essentially ‘investment markets’.  Both ordinary company stocks and the investment market stocks operate on the same stock exchanges. But the underlying valuation is tied to entirely different metrics.

Financial products were developed (as investment instruments) that are essentially wagers or bets on the outcomes of actual companies traded on Wall Street.  Those bets/wagers form the hedge markets and are [essentially] people trading on expectations of performance.  The “derivatives market” is the ‘betting system’.

♦Ford Motor Company (only chosen as a commonly known entity) has a stock valuation based on their actual company performance in the market of manufacturing and consumer purchasing of their product. However, there can be thousands of financial instruments wagering on the actual outcome of their performance.

There are two initial bets on these outcomes that form the basis for Hedge-fund activity.  Bet ‘A’ that Ford hits a profit number, or bet ‘B’ that they don’t.  There are financial instruments created to place each wager. [The wagers form the derivatives.] But it doesn’t stop there.

Additionally, more financial products are created that bet on the outcomes of the A/B bets. A secondary financial product might find two sides betting on both A outcome and B outcome.

Party C bets the “A” bet is accurate, and party D bets against the A bet.   Party E bets the “B” bet is accurate, and party F bets against the B.   If it stopped there we would only have six total participants.  But it doesn’t stop there, it goes on and on and on…

The outcome of the bets forms the basis for the tenuous investment markets.  The important part to understand is that the investment funds are not necessarily attached to the original company stock, they are now attached to the outcome of bet(s).  Hence an inherent disconnect is created.

Subsequently, if the actual stock doesn’t meet it’s expected P-n-L outcome (if the company actually doesn’t do well), and if the financial investment was betting against the outcome, the value of the investment actually goes up.  The company performance and the investment bets on the outcome of that performance are two entirely different aspects of the stock market. [Hence two metrics.]

♦Understanding the disconnect between an actual company on the stock market, and the bets for and against that company stock, helps to understand what can happen when fiscal policy is geared toward the underlying company (Main Street MAGAnomics), and not toward the bets therein (Investment Class).

The U.S. stock markets overall value can increase with Main Street policy, and yet the investment class can simultaneously decrease in value even though the company(ies) in the stock market is/are doing better.  This detachment is critical to understand because the ‘real economy’ is based on the company, the ‘paper economy’ is based on the financial investment instruments betting on the company.

Trillions can be lost in investment instruments, and yet the overall stock market -as valued by company operations/profits- can increase.

Conversely, there are now classes of companies on the U.S. stock exchange that never make a dime in profit, yet the value of the company increases.  This dynamic is possible because the financial investment bets are not connected to the bottom line profit.  (Examples include Tesla Motors and Amazon and a host of internet stocks.)  It is this investment group of companies that stands to lose the most if/when the underlying system of betting on them stops or slows.

Specifically due to most recent U.S. fiscal policy, modern multinational banks, including all of the investment products therein, are more closely attached to this investment system on Wall Street. It stands to reason they are at greater risk of financial losses overall with a shift in fiscal policy.

That financial and economic risk is the basic reason behind Trump and Mnuchin putting a protective, secondary and parallel, banking system in place for Main Street.

The Big Banks can suffer big losses from their investments, and yet the Main Street economy can continue growing, and have access to capital, uninterrupted.

Bottom Line:  U.S. companies who have actual connection to a growing U.S. economy can succeed; based on the advantages of the new economic environment and policy, specifically in the areas of manufacturing, trade and the ancillary benefactors.

Meanwhile U.S. investment assets (investment portfolios) that are disconnected from the actual results of those benefiting U.S. companies, and as a consequence also disconnected from the U.S. economic expansion, can simultaneously drop in value even though the U.S. economy is thriving.

♦The Modern Third Dimension in American Economics – HERE

♦How Multinationals have Exported U.S. Wealth – HERE

♦The “Fed” Can’t Figure out the New Economics – HERE

The FED Begins to Question the Economic Assumptions – HERE

♦Treasury Secretary Mnuchin begins creating a Parallel Banking System – HERE

♦Proof “America-First” has disconnected Main Street from Wall Street – HERE

This entry was posted in Big Government, Big Stupid Government, Budget, Donald Trump, Economy, media bias, Patriotism, President Trump, Secretary of State, Secretary Tillerson, Uncategorized, US Treasury, USA. Bookmark the permalink.

69 Responses to How MAGAnomic Policy is Interacting With Wall Street – Financial Systems and Investment Winners/Losers…

  1. India Maria says:

    Very clear Sundance. Makes my simple head spin a bit. But my IRA exploding after 10 years of NADA sure clarifies everything !!

    Liked by 4 people

    • evadouglas says:

      “When Main Street was purchasing the legislative influence the outcomes were beneficial to Main Street” … no they weren’t. Legislative policy in America has been lurching to the left for most of the past 100 years, with the exception of Coolidge and Reagan. Remember the 55 MPH speed limit that essentially killed Detroit? The EPA, OSHA, hundreds of other agencies… Tax policy, The Great Society, you name it… Sorry Sundance, I’m no troll but I’m not with you on this one.

      Like

  2. ALEX says:

    The last sentence is something many millions will find out the hard way once again. I’m glad you are stressing this over and over because most financial advisors have no incentive to do it…..

    Liked by 11 people

  3. average Joe says:

    The anti Luther strange commercials ,are a little different, down here in alabama.

    Like

  4. fleporeblog says:

    Thank you SD for once again explaining a very difficult topic. What I love most about your explanation is that everyday Americans that have a 401K, 529 College Plan, Mutual Funds, IRAs etc are the ones that will benefit because they are more likely having their money invested in the companies rather than betting for or against companies. The Globalist, CoC, Large Banks, Wall St etc can actually lose big money because they have decided to risk their money on betting either for or against companies.

    Once again when our President refers to the market because of his presidency, he is so happy that Main St Americans are reaping the rewards of his policies.

    Liked by 12 people

  5. HBD says:

    Thanks for explaining. Now I’ll admit it’s all so far over my head, I don’t understand any of it. But hey, I’m all for it.

    Liked by 9 people

  6. Rip Tide says:

    Excellent job SD!
    This is my industry, and I couldn’t have explained it any better. Keep in mind when 07′ and 08′ hit we all lost a lot, but there were many on Wall Street profiting on our pain by shorting markets and using all sorts of options and derivatives. All part of an ultimate scheme to take more away from Main St. IMHO.
    You are truly a sage on any and all topics. We are very blessed to have your wisdom and leadership!! Thank you for all you do for us Treepers👍.

    Liked by 22 people

    • trumpmaga says:

      Thank you SD. I love this site and all I learn from it.

      Liked by 2 people

      • RG says:

        Actually, this all sounds a lot like Craps at the casino. I got hooked on that game when casinos opened up big throughout the mid-south. It took about three years before I was cured and I don’t have the heart or will to play Craps anymore. Yep, if you don’t understand the “come” and “don’t come” aspect of the game, side bets and risk you should never go near a Craps table. My moto in life is this: “Big fish eat little fish”. I didn’t invent the saying, but I find it to always be true.

        Like

    • adoubledot says:

      So what types of derivatives are we talking about when there are parties A thru E and beyond, betting for or against each other’s outcomes? Much more than put/call spreads I imagine.

      Liked by 1 person

  7. I would hate to be a hedge fund company these days. I like to sleep at night.

    Liked by 5 people

  8. AmSa/Mx says:

    Liked by 4 people

  9. Ploni says:

    In short:

    The Globalists turned our lives, our fortunes, and our sacred honor into a game of chance that we could possibly win if we could ever afford the chance to play.

    Liked by 4 people

  10. dilonsfo says:

    That is f..ing amazing. 70 years on earth and I never understood how things work…until now. Talk about an old dog learning a new trick. Thanks Sundance. I couldn’t figure out why my kids and neighbors are constantly check with me on how I am feeling…now I know they are investing in derivatives on my final appearance on this earth.

    Liked by 9 people

  11. NJF says:

    Great analysis SD.

    I also worked on wall tree and you broke it down really well. You definitely always teach me something new!

    Liked by 2 people

  12. Brant says:

    Being a financial post, I thought his would fit here. And there was also a comment about historic CD rates and the toaster. What are the chances that there will ever again be a 2-4% CD, much less a 5-7%? The current interest on the debt is several hundred million right now when rates at <1%. Mutiply that by 2, 3, 4-6 times and the outstanding debt service jumps to trillions. Is the FED stuck and can't get to far from ZIRP even if they wanted to based on economic improvement?

    Liked by 1 person

  13. Jedi9 says:

    One thing I look for in terms of market analysis to see where liquidity is and volume, is the Treasury yields. Particularly the 10Y. So far with tightening of interest rates, less liquidity and overall volume being down, the healthcare bill debate and Tax reform are hot topics that has scared off investors for risk appetite. Then there is also the impending debt ceiling in September that has a lot of people spooked right now. Gold will be interesting to watch in the coming weeks.

    Like

  14. I keep coming back to where Congress expects to get their Mid-Term Election Funding, if they don’t pass ObamaCare Repeal and Tax Reform, at a time when President Trump is driving Make-in-America and Buy-American-Made while Secretary Wilburine Ross is renegotiating Trade Deals and slapping Sanctions on Countries that cheat.

    Host Countries to which American Manufacturers Offshored Jobs and Manufacturing Plants now face INEVITABLE LOSSES – before those countries raise corporate taxes to compensate for lost Trade Surpluses and lost Income from Unfair Trade Practices.

    Which Manufacturers (that will now necessarily be building and expanding plants) will fund an Obstructionist Congress (that maintains High Taxes and Skyrocketing ObamaCare Penalties/Premiums) in a growing economy with a tightening job market that will require higher incomes to compensate?

    Does an obstructionist Congress think President Trump will raise funds for them?

    Liked by 2 people

    • ginaswo says:

      Their big problem isn’t $$, they get plenty from CoC etc, their problem is where do they plan to get votes. HA!!!

      Liked by 1 person

      • Trish in Southern Illinois says:

        I think congress has finally decided that Russia Russia Russia is over, and is a complete failure to remove president TRUMP.
        So now there is a new plan….
        The communists that call themselves democrats, are going to pretend they’ve seen the light and are going to run on a faux Trump agenda…plenty of low info voters out there that will buy it.
        The globalist democrats that call themselves republicans, are just going to have to take one for the uniparty team and commit McLame/Romney suicide. They’re going to lose! They’re doing this on purpose! No other way to explain their actions.
        Congress is desperate.
        I hope the Boy Scout jamboree speech was a preview of what’s to come tomorrow night at the Ohio rally.
        I want BIG UGLY! I want congress to go down in flames! I’m 😠 seething.
        Ahhhh…
        Rant over.
        Carry on.

        Liked by 7 people

  15. neilmdunn says:

    David Stockman reinforcing CTH:
    “Traders today are just dancing – blindly. That’s why the Russell 2000 hit 1442 the other day, capitalizing the earnings of small and mid-cap domestic companies at 87.5 times.
    That’s crazy in its own right. As measured by valued added output of the U.S. business sector, the main street economy – where most of these companies live — has expanded at a tepid 2.1% annual rate since 2002.”

    Article: https://www.lewrockwell.com/2017/07/david-stockman/crazy-bubble-time/

    Like

  16. ginaswo says:

    Sounds like mebbe traders should short FANG, buy Kroger 😉

    Like

  17. Brant says:

    Your gold comment reminded me of silver and what inflation has done and bad money driving out good money (Gresham’s Law). I have I think less than $200 face value of silver (dimes, quarters, half dollars, full dollars, and some commemorative ounce coins). A few years ago when silver at about $30ish per ounce, my ~$180 was worth a few $1,000. If memory serves, a dime had $6 silver, a quarter about $12, a half dollar about $20, and a silver dollar (which weighs about an ounce) had $30-40 of silver.

    The 1964 halt of silver coinage is example of Gresham’s Rule of, “bad money chases out good money”.

    Liked by 1 person

    • ginaswo says:

      Speaking of silver..they have been suppressing SLV for so long. CFTC is useless. Various fines have been paid and it still happens. Zerohedge loves to talk about it.
      QE gave TBTF free $$ and they used it to corner commodities and make our lives more expensive. Ie Golden Slacks with aluminium.

      Liked by 3 people

  18. All I could think while reading this is what did we get ourselves into? lol

    Like

  19. So how to diversify your 401k? I have very little say in stocks and mutual funds with my companies financial group Vanguard. They are bundled. Just how is someone to invest in main street? Help!

    Liked by 1 person

  20. The Devilbat says:

    AN INTERNATIONAL BANKER PREDICTING STOCK MOVEMENTS

    Liked by 2 people

  21. Jeff says:

    Derivatives , MBE’S and credit default swaps = BETS = worthless paper =PREPARE ACCORDINGLY

    Like

  22. Jeff says:

    My best mutt guess is the parallel CAPITAL system created by the Trump admin. Will begin to pay higher interest rates on CD’s . Capital moving FROM …WALL ST worthless paper …TOO Main Street to jumpstart the engine of #MAGA CAPITALISM IN AMERICA .

    Get liquid and wait for commercial banks and credit unions to begin to offer higher rates .

    Liked by 1 person

    • Higher interest rates paid to savers is great, but that situation automatically comes with a higher cost to borrow – for mortgages, business start-ups and expansions, even cars and house remodels.

      It all balances out – I’m hoping for the best. But how many businesses to day are making profits of 5% to 7%? They have to be able to cover the costs of their loans. Non-business borrowers must have the increased income to cover the new loan payments.

      It’s a complicated business, folk!

      Like

  23. Maquis says:

    I still am not clear on how those speculators can be considered “investing” if their funds aren’t put to use by a company to produce or expand… It just looks like a game of marbles or a fantastically complex casino… They aren’t accomplishing, anything, not one worthwhile result other than hoping to gamble better than the other fools. It’s just screwy.

    Like

  24. saywhat64 says:

    The disconnect between true valuations and the trading valuations of an equity is what is know in market trading palance as the difference between technicals vs. fundamentals. How an equity trades often has nothing to do on it’s value but on how much much is being thrown at it or taken away in it’s daily trading activities. In the end, he who has the most money to throw around is the one who controls the price action, at least in the short run. Throw derivatives in the mix, which allows 10 to one leveraging and naked shorting, which illegaly allows one to sell equities manufactured out of thin air before it is owned, has created a situation in which the true value of an equity has almost no basis on reality. Now if it that is not bad enough, throw the Federal reserve in the mix which lends printed out of thin air funny money for practically $0 per cent interest (if you are one of the chosen ones). Now you have a situation that allows certain entities with almost unlimited resources to decide which financial equity vehicle lives or dies while making money in both directions (up or down). The Central banks in the last few years have even admitted to be involved directly in trading equities themselves !!!

    When the cost of borrowing the funny money goes up and the central banks begin to decrease their balance sheets, a huge loud bubble is going to pop as those highly leveraged will all rush to the ever shrinking door at the same time. It’s simple math folks and it is going to be ugly for anyone who is long.

    Like

    • Jeff says:

      BAZINGA !! the protections on our markets have been lifted by the GLOBAL COMMUNISTS (uniparty ) Glass / Steagall and the uptick rule open up our WALL STREET marked to naked short selling triggering institutional sell off self fulfilling prophecy. As happened in 2008 ( Kevin Freeman book THE SECRET WEAPON )

      Circular banking (WALL ST BANKS ) .FED issues WORTHLESS paper even China isn’t buying …..then ..bank A lends billions of “out of thin air ” fiat currency to bank B and takes a 2% cut . Bank B lends to banks C billions and does the same . Bank C lends to bank A and they all stay comfy cozy in the Hampton’s this summer .

      Effectively fire-walled from economic conditions on main street or the uniparty in DC

      Liked by 1 person

  25. Pinkie says:

    Sundance left the best part out..

    Which is that if Wall Street gets burned too badly on its bets, the government will step in and bail them out.

    Of course if the bets go well Wall Street gets to keep the winnings.

    Like

  26. Summer says:

    There are few things in this world I hate more than the arcane matters pertaining to banks and stock markets, lol.

    Like

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