“Buybacks have been a tremendous support for US equities,” says Orrin Sharp-Pierson, a strategist at BNP Paribas. Referencing the efforts of aggressive central bank policy, he adds: “It’s been like quantitative easing directly on equities, $40bn-$50bn per month.
Companies have been a key source of support in recent years as investors have stepped back from buying equities. Since the start of 2010, companies have spent $3.3tn on share buybacks and dividends, as the US economy has recovered and investors sought blue-chip names with stable and growing returns.
Over the past five years, US investors have poured $301.5bn into domestic equity exchange traded funds, data from XTF.com shows. However, with redemptions of $411.1bn from US stock mutual funds over the same period, there has been a shortfall of more than $100bn between the two, according to the Investment Company Institute.
Negative Bond Yields in Europe via QE
Negative bond yields cause the value of liabilities to balloon and the adverse impact on the pension fund’s solvency will tend to outweigh any benefit from QE on the value of the asset.
Negative bond yields cause the value of liabilities to balloon and the adverse impact on the pension fund’s solvency will tend to outweigh any benefit from QE on the value of the asset.
The risk is that cheap borrowing will finance suboptimal investments, whether in fixed assets or expensive share buybacks in a frothy equity market. At the same time the debtors’ paradise keeps zombie banks afloat and allows them to roll over the debts of zombie companies. That in turn holds back productivity growth.
US QE
China debt-fueled expansion
