DollarCollapse.com

It's Coming...

HAA

  • Home
  • About
  • Breaking News
  • Articles
    • Creeping Fascism
    • Currency War
    • debt
    • Dollar
    • Economy
    • Inflation
    • Monetary policy
    • Precious Metals
    • Stock prices
    • Videos
  • Buy Gold And Silver
  • Join The Email List
  • Contact

Two Trends That Will Force The Fed To Start Buying Stocks

by John Rubino ◆ March 25, 2017 16 Comments

While the Japanese and Swiss central banks have turned themselves into hedge funds by loading up on equities, the US Fed has stuck to supporting the stock market indirectly, by buying bonds. It’s worked, obviously, with all major US indexes at record highs. But it won’t work going forward, thanks to two gathering trends.

First, the main way bond buying supports equities is by lowering interest rates which, among other things, allows corporations to borrow cheaply and use the proceeds to buy back their own stock. Companies avoid paying dividends on the repurchased stock and the government gets capital gains tax revenue from a bull market. From a short-sighted Keynesian perspective, it’s a win-win.

Alas, this New Age public/private partnership on running out of steam. Interest rates have fallen about as far as they can fall and corporations have borrowed about as much as they can borrow. So the buyback binge is topping:

Share Buybacks Sink For Second Straight Year

(Forbes) – According to S&P Dow Jones Indices, companies of the S&P 500 index in the fourth quarter pulled back on their share repurchases by 7.2% from the fourth quarter 2015, although they accelerated 20.6% sequentially.

Companies spent $135.3 billion buying back their shares during the fourth quarter, compared to $112.2 billion from the third quarter and $145.9 billion in the fourth quarter 2015. For the full year, they spent $536.4 billion on buybacks, a decline from $546.4 billion in 2015 and $553.3 billion in 2014 – the first time the index saw two consecutive years of declines since the financial crisis era or 2008 and 2009.

A longer-term but potentially much bigger problem for equities can be found in the structure of US retirement savings accounts. At age 70, holders of IRAs are required to start cashing them out, and as the number of Boomer retirees soars the size of these required sales will rise commensurately. Here’s a snippet from a longer analysis by Econimica’s Chris Hamilton. The full article is here.

Required Minimum Distributions Spell Disaster (& Even Greater Intervention) As Sellers To Overwhelm Buyers

Simply put, investing for the long term had it’s time but that time is drawing to a close. The math is pretty easy…we’ll have too many sellers and too few buyers. Why? At age 70.5 years old, retirees are mandated by force of law to sell tax deferred assets accumulated over their lifetime and do so in a 15 year period. Conversely, buyers, incented by tax deferral (but not forced to buy by law), generally have a 35yr window of accumulation. Over the past 65 years (on a population basis), there were three new buyers for every new seller. Over the next 25 years (on a population basis), there will be three new sellers for every new buyer.

In the next downturn, corporations will stop buying — as they always do at bottoms — and retirees will be forced by both necessity and law to liquidate some of their nest eggs. Combined, these sales will put unacceptable downward pressure on stock prices, leading to the kinds of instability that over-leveraged systems can’t handle.

The Fed – and probably the ECB – will then join the BOJ and SNB in buying equities. Like QE and the other recent monetary experiments, this might be seen by mainstream economists as a good thing. But it’s not. For at least three reasons why it’s not, see We’re All Hedge Funds Now, Part 4: Central Banks Become World’s Biggest Stock Speculators for at least three reasons why it will make a bad situation infinitely worse.

Comments

  1. Bruce C. says

    March 26, 2017 at 2:17 am

    And the irony is that is not necessarily a false sense of security. Counting on the Fed/CBs to maintain stock prices as the elderly sell out is what they will probably do.

    I read the article that is cited and – like so may other “theories” – doesn’t consider the entire framework. The Fed has always been called the “lender of last resort” and that’s basically the same as the “buyer” of last resort.

    Isn’t it interesting to see how Jefferson’s admonition that the banks (read: “those who coin the currency”) will ultimately own everything?

    Reply
  2. that some serious mony printin says

    March 27, 2017 at 1:27 am

    buyin stocks overtly would mean printing on a massive scale,buyin stocks,bonds,mortgages,student loans,cc dept, auto’s,obamacaid etc would force yellen to cut a check of roughly 1-2 trillion a month evey mofo month

    Reply

Trackbacks

  1. Two Trends That Will Force The Fed To Start Buying Stocks | NewZSentinel says:
    March 26, 2017 at 12:29 am

    […] Original newz story – Click here […]

    Reply
  2. Troy Oz Silver | Two Trends That Will Force The Fed To Start Buying Stocks says:
    March 26, 2017 at 2:34 am

    […] Two Trends That Will Force The Fed To Start Buying Stocks […]

    Reply
  3. Two Trends That Will Force The Fed To Start Buying Stocks – Cryptocurrency blog and news agregator says:
    March 26, 2017 at 3:12 am

    […] READ MORE […]

    Reply
  4. Two Trends That Will Force The Fed To Start Buying Stocks | Patriot Money News says:
    March 26, 2017 at 7:21 am

    […] post Two Trends That Will Force The Fed To Start Buying Stocks appeared first on […]

    Reply
  5. Two Trends That Will Force The Fed To Start Buying Stocks - John Rubino says:
    March 26, 2017 at 2:20 pm

    […] Continue… […]

    Reply
  6. Two Trends That Will Force The Fed To Start Buying Stocks | Earths Final Countdown says:
    March 26, 2017 at 6:16 pm

    […] by John Rubino, Dollar Collapse: […]

    Reply
  7. Two Trends That Will Force The Fed To Start Buying Stocks | Hard Asset Protection says:
    March 26, 2017 at 10:58 pm

    […] by John Rubino, Dollar Collapse: […]

    Reply
  8. Two Trends That Will Force The Fed To Start Buying Stocks - Investing Matters says:
    March 27, 2017 at 2:34 pm

    […] Authored by John Rubino via DollarCollapse.com, […]

    Reply
  9. Two Trends That Will Force The Fed To Start Buying Stocks - says:
    March 27, 2017 at 2:37 pm

    […] Authored by John Rubino via DollarCollapse.com, […]

    Reply
  10. Two Trends That Will Force The Fed To Start Buying Stocks - BuzzFAQs says:
    March 27, 2017 at 2:51 pm

    […] Authored by John Rubino via DollarCollapse.com, […]

    Reply
  11. Two Trends That Will Force The Fed To Start Buying Stocks | It's Not The Tea Party says:
    March 27, 2017 at 3:07 pm

    […] Authored by John Rubino via DollarCollapse.com, […]

    Reply
  12. Two Trends That Will Force The Fed To Start Buying Stocks « Financial Survival Network says:
    March 27, 2017 at 6:27 pm

    […] by John Rubino Dollar Collapse […]

    Reply
  13. Mike Maloney: The Catastrophic Law That Mandates A Stock Market Crash says:
    March 28, 2017 at 1:14 pm

    […] This is the beginning of a mass exodus from the stock market. Link to John Rubino’s article: http://dollarcollapse.com/monetary-po… Link to Carl Swenlin article: […]

    Reply
  14. The Catastrophic Law That Mandates a Stock Market Crash « Financial Survival Network says:
    March 28, 2017 at 6:31 pm

    […] This is the beginning of a mass exodus from the stock market. Link to John Rubino’s article: http://dollarcollapse.com/monetary-po… Link to Carl Swenlin article: http://stockcharts.com/articles/decis… If you enjoyed watching […]

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Lanista

Birch

Biden's Plans to Upend Retirement Accounts

Biden’s Plans to Upend Retirement Accounts

 China Just Attacked the USD

China Just Attacked the USD

Millions to be Hit Hard by this U.S. Scheme to Confiscate Your Savings

Millions to be Hit Hard by this U.S. Scheme to Confiscate Your Savings

Millions to be Hit Hard by this U.S. Scheme to Confiscate Your Savings

The “New World Money Order” to Dethrone the Dollar

The Sneaky IRS Tax Law that's Sweeping the U.S.

The Sneaky IRS Tax Law that’s Sweeping the U.S.

Ultimate Gold Investing Guide

TT gif

RAA right sidebar

Money Bubble

Bullion Vault

Adsense Right Rail




AST Article Right Rail 4

AST Article Right Rail 1 + Jay Taylor ad after social media buttons

Google code for remarketing tag

AST Article Below Post

Hyperlink article ellipses, resize images, truncate previews

Sponsored Post

AST ROS Right Rail 1

Gold price chart

Silver price chart

Dollar index chart

Bitcoin

AST Article Broker Buttons

Whatfinger

Buy Gold And Silver Here

Buy Gold and Silver


Birch Gold Group

Hard Assets Alliance

GoldSilver

GoldMoney

Bullion Vault

Google

Copyright © 2021 · DollarCollapse.com