Posted on 12/03/2014 8:11:41 AM PST by IBD editorial writer
With all the economic gloom in the world, many have been perplexed: Why have stocks done so well, especially in the U.S.?
(Excerpt) Read more at news.investors.com ...
When the markets imploded in the Fall of 2008, most large US corporations:
(1) Significantly cut unnecessary spending
(2) Let go of unproductive and unnecessary personnel
(3) Straightened out their balance sheets and moved to large cash surpluses.
Things the Federal Government should be doing. ----------------------------------------------------------------
The other "Safe Haven"in the eyes of foreign buyers, mainly Asian buyers with a lot of money, are homes/estates in good climate/desirable areas in America. They are ponying up and buying $ million plus homes/estates to live in or as investments.
Inspite of Obozo, Reid, Pelosi and the rest of the rat Congress and Holder's efforts to ruin America, most of the world's population still sees America as the best place to live in and to invest in, or both.
Odd that businesses are supposedly booming while so many people seem barely able to get by.
Thanks.
I left out another key thing corporations have done since 2008 which the Federal Government should also be doing:
Pairing down debt!
Another reason why stocks of companies with sound balance sheets are almost always a good investment over the long run.
Progressives ($ocialists) propping up a $ymbol.
Over the long term, financial repression fosters a bias toward inflation. Even over-leveraged governments find fiscal discipline politically hard, and socialist policies favor high taxes and excessive regulations that discourage economic growth. In such an environment, reliance on monetary expansion to suppress interest rates tends to generate inflation, often undoing much of the benefit of financial repression when interest rates on public debt spike and increase the burden on borrowers.
Increases in money created out of thin air leads to increases in aggregate demand, which leads to increases in revenue of individual business firms, which leads to increases in amount and rate of profit, which leads to increased valuation of firms, which leads to higher stock market prices.
Rotation of assets.
The US stock market is the last man standing in the investment world.
Bingo... all of the money that has been printed has been flowing into the stock markets.
I’m not a gambler and it’s paying off for me. I have had essentially the same portfolio for nearly a decade.
>> People like easy money.
I like dividends.
Well, that’s two of us.
Having just finished reading Brad Thor’s book “Hidden Order” yesterday, if you too would read it, you would understand the answer to the question “Why are Stocks Thriving Amid Global Gloom”. An excellent thriller also, I might add. Couldn’t put it down and thus lost sleep until I finished reading it. Loused up my sleeping schedule bigtime, but it was worth it. I highly recommend the book, and if you read it then you will have a much better idea about how the Federal Reserve operates and how it is primarily the East Coast elites that benefit the most from Fed fiscal policy.
I would add one important point about these companies.
The ones which pay good dividends on a regular basis.
“Another reason why stocks of companies with sound balance sheets are almost always a good investment over the long run.”
Wrong. Bond markets.
It is true that a lot of that money goes to bonds, but money moves around and a lot of it ends up in other instruments, including stocks.
That's a fancy way of admitting that the money goes into circulation. That doesn't answer the purpose and focus of QE.
We are essentially monetizing the debt. The government is ensuring the market for Treasuries stays liquid. As the debt is issued, they step in to ensure there isn't a failed auction. Supply and demand... a failed auction will mean a significant drop in bond values and a major shock upward for interest rates. It would cause a bond market panic... and the bond markets dwarf the equity markets by orders of magnitude.
In this environment, no one can truly predict the impact of such a situation so the Fed just keeps doing it. Even when they announce a tapering or end to QE it is always with the caveat that they will buy "only if needed." That's code for "We won't allow a failed Treasury auction. As long as the government is deficit spending, we will continue to be the buyer of last resort for issued debt."
I get all that, and given the situation, where do you see this shaking out in 10-15 years? Eventually our national debt is going to cripple us but what else do you see on the horizon?
It isn’t so much a long-term projection of where we will be but more a recognition of a long-term trend. I see generally rising interest rates for the foreseeable future. This will likely hurt bonds and help stocks.
As to the Federal debt... it’s currently manageable. What is a problem is piling debt on top of debt. Also, in the future, as debt matures, it will be refinanced at higher rates. If we can get to the point of stopping the growth of the debt... that will help a lot. We’re aren’t projected for that future yet.
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