ARTICULOS DE ANALISIS DE NIVEL INTERNACIONAL
COMO QUE LA FED DE LOS EEUU: TENGAN QUE COMPRAR "STOCKS"
Por: Dennis Falvy
TWO TRENDS THAT WILL FORCE THE FED TO START BUYING STOCKS
By ; Dollar Colapse Blog
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 Economica’s Chirs 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.
THE BEGINNING OF THE END?
By: The Heisenberg
Summary
- The Trump administration's decision to abandon the bid to repeal and replace Obamacare capped off a week in which we got more evidence that the narrative driving markets has cracked.
- Does that mean this all falls apart completely on Monday?
- No. But it does mean the writing is on the Wall.
- Herein, find the data and the charts that back up that assessment.
I've been known to write a fun title (or five).
For instance, a couple of weeks ago I penned a piece called, "7 Signs Of The (Market) Apocalypse."
But this particular post isn't a doomsday prophecy. Rather, the idea is simply that over the past several days, we've gotten quite a bit of evidence to suggest that the narrative driving markets has cracked and that likely presages an unwind of some kind.
Does that mean the S&P (NYSEARCA:SPY) is going to promptly crater on Monday morning or that 10Y yields (NYSEARCA:TLT) are going to abruptly crash to post-crisis lows in a mad dash to safety that catalyzes massive short-covering in the 3-sigma Treasury short and drives a stake through the heart of the global reflation story?
No. That's not what it means. Or at least I hope not (reminder: Heisenberg is your friend - he wants you to make money contrary to popular belief).
What it means is that the honeymoon ended when the GOP bid to repeal and replace Obamacare failed.
Donald Trump's Friday afternoon move to cancel the vote on the new health care bill served as confirmation of what markets had already begun to price. Namely that the contentiousness of the health care debate presaged nothing good with regard to the timetable for tax reform and fiscal stimulus, two pillars of the reflation narrative that's propelled risk assets higher since early November.
With that as the backdrop, consider that according to EPFR Global data, U.S. equity funds saw net outflows of $8.9B, last week, the largest in 38 weeks or, in context, the most since the Brexit referendum. As BofAML wrote on Friday citing the same data, "outflows from U.S. value funds were the largest in 66 weeks [while] outflows from U.S. small caps were the largest in 24 weeks."
That marks something of a reversal of fortune considering the fact that retail inflows have been variously cited as the proximate cause for YTD gains in stocks.
Speaking of retail inflows and the impact on the S&P, consider the following out Friday from RBC's Charlie McElligott:
The Quant-Insight PCA macro factor model shows that the long-term (250d) model for SPX pricing shows that 'shares outstanding' increases in SPY ETF have been the second largest factor sensitivity for SPX, i.e. the shift from active to passive from both institutions and retail flows has been a massively important price support for SPX.
This relationship 'peaked' in the "post- US election through Jan '17" period… and has since collapsed precipitously, down to 'zero' in fact. Thus, increases in SPY shares outstanding are showing no impact on SPX short-term prices.
The takeaway seems to be this: not only are retail flows reversing, they don't matter anymore anyway.