{"id":48862,"date":"2019-10-07T07:24:57","date_gmt":"2019-10-07T12:24:57","guid":{"rendered":"https:\/\/olduvai.ca\/?p=48862"},"modified":"2019-10-07T07:25:03","modified_gmt":"2019-10-07T12:25:03","slug":"whats-holding-up-the-market","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=48862","title":{"rendered":"What’s Holding Up the Market?"},"content":{"rendered":"\n

What’s Holding Up the Market?<\/a><\/h3>\n\n\n\n

The Fed’s\u00a0nearly free money for financiers\u00a0policies in support of the Super-Rich do not exist in a vacuum–the disastrous consequences are already baked in.<\/em><\/p>\n\n\n\n

What’s holding up the U.S. stock market?<\/strong>\u00a0The facile answer is the Federal Reserve (“the Fed has our back,” “don’t fight the Fed,” etc.) but this doesn’t actually describe the mechanisms in play or the consequences of a market that levitates ever higher on the promise of more Fed money-for-nothing injected into the diseased veins of the financial system.<\/p>\n\n\n\n

As Gordon T. Long and I discuss in our latest half-hour video program,\u00a0What’s Holding the Market Up?<\/a>\u00a0(34 minutes),\u00a0the primary prop under stock valuations are corporate buybacks,<\/strong>\u00a0which total in the trillions of dollars since the 2008-09 Global Financial Meltdown and the Fed’s “rescue of the rich,” which continues to this day.<\/p>\n\n\n\n

Rather than risk capital in productive investments, U.S. corporations have borrowed trillions of dollars and used the cash to buy back their own shares.<\/strong>\u00a0The Fed’s suppression of interest rates has incentivized stock buybacks in several ways:<\/p>\n\n\n\n

1. When it’s cheap to borrow billions, the biggest bang for the buck is to use the borrowed bucks to buy back shares, which creates\u00a0an illusion of growth<\/em>\u00a0as per-share sales and earnings both rise as shares are withdrawn from the public market.<\/p>\n\n\n\n

Let’s say a company has a million shares outstanding and earns a net profit of $1 million. The per-share net profit is thus $1 per share. If the company borrows money and buys back 500,000 shares of its own stock, the per-share net earnings double to $2 per share.Presto-magico, the company appears to be more profitable, and so its valuation based on its price-to-earnings ratio (P-E) adjusts higher, even though revenues and earnings have remained stagnant.<\/p>\n\n\n\n

 \u2026click on the above link to read the rest of the article\u2026<\/p>\n","protected":false},"excerpt":{"rendered":"

What’s Holding Up the Market? The Fed’s\u00a0nearly free money for financiers\u00a0policies in support of the Super-Rich do not exist in a vacuum–the disastrous consequences are already baked in. What’s holding up the U.S. stock market?\u00a0The facile answer is the Federal Reserve (“the Fed has our back,” “don’t fight the Fed,” etc.) but this doesn’t actually […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[1849],"class_list":["post-48862","post","type-post","status-publish","format-standard","hentry","category-economics","tag-financial-markets"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/48862","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=48862"}],"version-history":[{"count":2,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/48862\/revisions"}],"predecessor-version":[{"id":48864,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/48862\/revisions\/48864"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=48862"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=48862"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=48862"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}