March 24, 2015
What funds the next leg up in equities
We’re not sounding an alarm but it takes increasing money flows to push equities higher and its not immediately clear from where the next huge source of additional demand for equities will come.
Rest easy. I will be the additional demand. I know that I have stated on this blog on more than a few occassions that they can pry the long-term TIPS and I-bonds from my cold dead fingers, as I was fully intending to hold to maturity. I have had a change of heart though.
The majority has convinced me. There is no risk in investing in stocks after they have tripled off the lows of the Great Recession. I'm loving this whole buy high and sell even higher momentum vibe. Nothing bad will ever happen again. I get that now. I'm totally on board.
There are just two things I need to do before taking the plunge.
1. I need to wash my hair. Now I realize that many men have been told this by many women over the years, and it has often led to disappointment when dating. Believe me when I say this though. I'm not looking to postpone the buying of stocks here. I am super excited to have this once in a lifetime opportunity. There is nothing I look forward to more.
2. I need to capture one of the monkeys that will be flying out of my bottom. I'll be in the shower anyway washing my hair. There's no better time to look for them. Shouldn't take me much additional time at all.
In summary, there's no reason to panic. I will be selling my long-term bonds and buying stocks after I wash my hair and capture a monkey flying out of my bottom. You can take that to the bank. I will single-handedly support this market. Trust in me!
Now we just need to find someone else to follow my lead once I have fully loaded up on stocks. Otherwise, this will start to look like a failed ponzi scheme again, and we certainly don't want that! Again!
The stock market must generate 10% returns for all eternity or an eternity's worth of hope is lost!
"its not immediately clear from where the next huge source of additional demand for equities will come"
ReplyDeleteGen Y is collectively only 1/6th into its 30s now, there's that.
I don't understand how corporations can have quadrupled their after-tax income since 2000, to $2T from $500B
https://research.stlouisfed.org/fred2/series/CP/
without consumers are workers running out of money, but that is the global profit and so much of our corporate money is multinational.
Plus there's this:
http://www.bea.gov/newsreleases/international/intinv/intinvnewsrelease.htm
which AFAICT I would need a seminar series or semester course to understand.
Troy,
ReplyDeleteProfits up due to some inflation, cost cutting, lack of wage pressure due to cost cutting, and my personal favorite... potential lack of long-term investment in the future? To maximize executive stock options in the present? Much like stock buybacks have done?
Oh, and let's not forget what lower interest rates can temporarily do to profits. If you borrow cheap money to pay off expensive debt then your profits will go up, perhaps by quite a bit.
How much is sustainable though? Fat profit margins and that same cheap money are effective lures for increased competition. Just look at oil production lately.
If a restaurant opens up and makes serious money does that not invite another restaurant to open up and attempt the same? And so on? And what if the economy then falters again? Then what?
There is a potential source of unlimited stock market demand: central banks.
ReplyDeleteCheck out the direct ETF and REIT purchases by the BOJ here.
The trend since 2010 is clear. The purchases are getting bigger and more frequent. For 2014 alone, the BOJ created $13.9 (current exchange rate) and bought stocks with it.
The Fed has created $4 trillion to buy bonds, mortgages, and ABS. They have not admitted to buying stock futures directly yet, but who would be surprised if they announced that as part of QE5. Central banks can set the prices of all financial assets as needed.
$13.9 billion
ReplyDeleteMr Slippery,
ReplyDeleteThat would indeed be good for stock market investors of the future.
However, stock market investors of the present should probably realize that the Fed probably wouldn't be buying until there is blood in the (wall) streets again.
direct ETF and REIT purchases by the BOJ here
ReplyDelete$7B YTD, not bad, but http://research.stlouisfed.org/fred2/graph/?g=15k0
shows Kuroda is printing at a pace of $800B/yr, wait, that's using USD parity, which of course was lost some time ago.
Deflationary depression are a choice, as are inflationary recessions -- you get to pick one or the other apparently.
i think Japan must have chosen both. The deflation canceled out the inflation and they were left with depressing recessions!
ReplyDeleteJapan's "deflation" was actually just decades of flat consumer prices. In ancient times, this would have simply been called stable pricing. Awards might have even been given to the monetary authorities along with congratulatory high fives. These are not ancient times though. Stable pricing has created a full scale panic, lol. Sigh.
Silly Mark, the boomers will sell their massively appreciated houses and pour into equities. The effect of which will be to run up the value of the stocks they already own. By then they won't know what to do with the thousands every month from no mortgage and $1 diesel for the motor home.
ReplyDeleteRob Dawg,
ReplyDeleteHahaha!!!
This reminds me that I should be leveraging up my motor home exposure. If I bought a fleet of 100 using all this "cheap" borrowed money then I could could create a mobile motel chain that travels back and forth acoss this great country!!
No property taxes! Keep each "room" moving at the speed limit using public highways! Genius! ;)
Motor Hostel 100
Lookin' to spend the night? Don't care where you end up? We've got somethin' designed with you in mind! Always coming and going to and from a city near you! Let us do the driving while you do the sleeping!!