EC AMC Foolishness Comes At A Dear Cost

AMC (AMC) Foolishness Comes At A Dear Cost

“For one thing, in a world of free money, there’s almost no penalty for being a numbskull. And no reward for prudence. You run your business at a loss? No problem. Just borrow whatever you need.”–Bill Bonner

In Undermining Capitalism with Unreal Values and Crass Distortion we discuss how recent extreme monetary policy measure undermine capitalism. The article highlights how yield hungry speculators are piling into junk-rated debt despite the fact they all but guaranteed to lose purchasing power.

Photo by Donreál Lunkin on Unsplash

Our gripe goes well beyond the mispricing of financial markets. Its more insidious. Warped market values reduce the productive output of the economy, and therefore impair wealth and income equality. Misallocated capital is inflating the value of meme stocks, such as the near-bankrupt AMC movie chain, and draining resources from productive sectors of the economy.

Bad News Is Not Good News

The Wall Street Journal recently published- Explaining ‘Bad News for the Economy Is Good News for the Stock Market’.

We can sum it up in one sentence: bad economic news is good news for share prices because it ensures the Fed will provide stimulus for longer.

In a robust economy, with the promotion of productivity as its centerpiece, investors should greatly favor good economic news. Conversely, in a market fueled by excessive speculation, bad news and the accompanying liquidity from the Fed trump economic reality.

The juxtaposition of their preferences define the type of market the Fed is fostering.

March Of The Zombies

In properly functioning markets investors aim to buy assets with promising growth potential. Further, they should generally shun investments with limited or no growth potential. Such a capitalistic process allows new companies with productive ideas to raise capital. At the same time, it limits capital flows to companies with unproductive assets and little potential.

This dynamic ensures productivity growth. We can think of the self-serving process as capitalistic Darwinism, or as well call it, the Virtuous Cycle.

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William K. 1 month ago Member's comment

Sorry Folks, I am rather more in favor of "Natural Selection"in business and life. This includes credit at some interest rate so that gambling is not cheap. Just because somebody has an idea does not mean that it is a good idea, Poor ideas fail, and poorly managed good ideas fail also. Nature is brutal and non-forgiving of poor choices.

And the Federal Reserve club has done what they can think of to support that alternative approach of helping their friends on Wall Street, with no regard for the rest of the population.

Dick Kaplan 1 month ago Member's comment

Good read, thanks.