Ever since the "Working Group on Financial Markets", also known as the "Plunge Protection Team", was set up in 1988, the P/E ratio for S&P 500 never crept under 15.
It appears that the team that was set up to prevent stocks markets from falling, to the supposed benefit of us all, has morphed into a tool for the elite to dictate the prices of stocks and other financial assets. As a consequence, all financial assets are miss-priced, to the benefit of the rich and detriment of the poor. Saving for ones pension has been made much more expensive than it would have been in a free market, allowed to correct from time to time.
With a limitless supply of money, the Plunge Protection Team can buy any asset it chooses at any price it finds appropriate. It can elevate asset classes that it favors by buying long future contracts, and it can suppress the price of other asset classes by buying short contracts. It sets the price range of everything to whatever the elite finds correct.
With people having prior knowledge to where prices will go, those with access to this information benefit at the expense of those who don't. But the Plunge Protection Team is playing with fire. They have neutered the market. There is no price discovery. The market is now little more than a rigged casino. Everything has an arbitrary price with very little bearing to reality.
How long this can go on is anybody's guess. But at some point, even limitless access to cash will be powerless to stop price discovery from returning. That day will come when the Plunge Protection Team finds itself hopelessly short on gold and equally long on junk.
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| Hot air balloon |
By Kropsoq - photo taken by Kropsoq, CC BY-SA 3.0, Link
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