There is a point where everywhere too much capital becomes more burdensome than being helpful. We arrived at that place six months ago, since the vaccine is coming online.
Too much capital sticker shock in the housing market, massive non-affordability and turnover slowdown (some might call it a stalemate between General Y and Boomers who won’t sell at a reasonable price). And if it continues for too long, it could even hinder the formation of new households, the single most powerful force for growth in the entire economy.
Too much capital in the bond market leads to dire consequences for savers for whom it is no longer possible to take risks. In some cases, this leads to a kind of paralysis where millions of people resign themselves to a future of declining purchasing power and the loss of rewards from work and earned life. In other cases it creates the opposite effect অতিরিক্ত taking extra risks and pursuing a risk for something যেক anything নাম a nominal figure উপরে above current percentages or inflation সমন্ব including a negative number. It has been commented that the combination of financial and financial stimulus has forced you to turn your savings account into a bond portfolio, turn your bond portfolio into a dividend stock portfolio, your stock market allocation is now Venture Capital and your Venture Capital is now. If this assumption is true, then it’s no surprise that junk bonds spread over investment grades on record tights. You should not be surprised to see that Bitcoin is now associated with the Nasdaq 100.
Too much capital in people’s bank accounts (I know, is that really a problem?) Leads to too much inertia in the labor market. In contrast to the pre-epidemic economy, it is not possible to have more than seven million unemployed, while more than ten million jobs remain unfinished, but here we are. Why? Many people don’t work until they need to. “So what’s wrong with that?” You may ask … I’ll let you know in ten years. It may not be good for society to see children piloting their parents until noon on weekdays. Employers are willing to pay and fulfill these tasks again. Where are the workers? Small business owners are not tycoons. They are not exploiting labor. They are the engine of American life, growth, and the prosperity of the middle class. The extra capital in the system helped them pay their bills in 2020. Now it is making it very difficult to run a business.
Finally, and this is a small business issue – there is too much capital in private equity. Let’s take the example of a small chain of physical therapy storefronts that are operating in one of the fastest growing segments of the economy as the American population is increasingly obese, aging and more vulnerable. The physical therapy storefront is a small chain, conveniently located in a strip mall on several adjacent counties and supported by almost 100% private insurance / government insurance. Let’s call them SS Physical Therapy, a symbol of the days when A needed to be higher in a column of yellow pages.
Well, the owner of the chain, we’ll call him Rick, in his late 50’s and has done a lot to build his small empire, starting with an appointment with injured athletes and promoting it to a local brand that people trust and refer to friends and family. Keep doing. This is a classic American dream type situation. And now here comes the (Jewish surname, WASP surname) personal equity fund. We will call it Friedberg Carrington. However, the Friedman guys look at Rick’s business and they say, “Look at these cash flows. We need that cash flow for our funds!” Rick accepts and now S Physical Therapy is a wholly owned “asset” of Friedberg Carrington Master Fund III, Series A, Trench 6, which was initially funded in 2018 and will run until the end of 2028 at the highest possible cost from Friedberg S Physical Therapy Center. Removes (and frills) when Rick gets busy buying that corvette and shopping for a new asset manager. Rockstar (they tell you).
By the time Friedberg is completed, the S is twice as profitable and works with only 0% of the staff used. And it has brought in new employees whose costs are lower than the old ones. And it has replaced many personal touches and small gestures that make S patients feel special. However, it streamlined all appointment bookings and automated all touch points and check-in and data collection. The clipboard and pencils are in the dumpster again. Now you proceed to the facial recognition scan. With your medical history floating on a data lake in the clouds, the front desk intake specialist can dive into that lake whenever information is needed. You are in the hands of a machine.
And then three years went by and Friedberg was ready to sell. A large private equity firm has arrived, and they have already acquired nine physical therapy chains across the country from nine mom and pop operators like Rick. Combined physical therapy disciplines can find insurance for less, retail space for less, less supplies and equipment, less software, find employees more efficiently, and share huge marketing costs. It’s a wise and happy-buyer selling Friedberg pays ten times as much as last year’s cash flow, because with zero o cost zero, why not? Also, of course new monetization methods and adjustments are available. For example, “Why does it take a therapist 40 minutes to work with a patient who has recovered from neck surgery? Of course that can be done in 30 minutes per session, no? And why can’t the same therapist work with two or three patients at the same time, if they all recover from something related to a neck injury. Or back or shoulder, what’s the difference? If they all live in a big room, lying on the table next to each other, of course we can tear down more productivity in each member of the staff. What’s that? They don’t like it? Okay, you’re fired. The patient does not like it? Well that’s what your insurance company is willing to offer the level of service, welcome to find a therapist in person.
Now multiply this factor ten times, then multiply it a hundred times, then multiply it a thousand times, one million small businesses from coast to coast. Because everything gets a little bit, a little bit at a time Money. Cash alternatives are needed because cash does not make money. In the end, its trillions end up in a fundraiser that encourages them to take everything away from the businesses they buy and return as much cash to an unknown pile of cash flows. The The money ironically, when Rick hired his asset manager, five percent of his portfolio was allocated to a very private equity fund, who bought the Friedberg fund and reinvested the business that was sold two degrees earlier. It’s going up and down the cheese painted with people’s lifestyles like Money Carousel while the suits cut their fees from each revolution, no matter how much (or little) riders are having fun.
Substitute physical therapy for a dentist or hairdresser or law firm or financial advisory firm or accounting practice, it is happening everywhere. It is inevitable.
So, I went a long way in this example to show the real, real effect that zero percent interest rate policies are seen on the main street, even as it acts as a pandemic, reducing mortgage and other orrowing costs, somewhat unevenly, but still.
The forces I described to you long before the beginning of Covid-1 were already there. But Covid’s response has sent them all into overdrive, accelerating their impact on everyone and everything until we find employment, labor and equipment shortages, sinking ventures and private equity funds and a pump-up stock and bond market. It takes a lot of imagination to anticipate a forward return.
And since almost everyone has become richer and at the same time less confident about their future (check out the sentiment surveys, I’m not making it), we’ve actually fallen into a very ironic situation. When tapping begins, and property markets respond, it doesn’t feel bad at all. It feels like a breath of fresh air. The price will reflect the end of the maelstrom. Slowness allows us to breathe together and check our heart rate when the shock begins to subside. Oddly enough, the slowness of all the fluidity would feel like rain in the desert, for those of us who haven’t seen this annoying speed for another six months. Profits will be moderated, Gusher will lose to gravity, the sound of slot machine jackpots at crypto casinos will stop every hour. You will be able to think straight again. You will be able to take your time. You will be able to act rationally instead of reacting greedily.
Come on stock and bond price correction, it will feel like a gift. Let’s wind-down the most extraordinary monetary policy in history, it would seem like a relief. And if the process starts with comments from the Federal Reserve this week, so be it. It’s a long time ago.