Monday, July 23, 2018

Crucial Financial Data You Are not Receiving

A)     The End of Quantitative Easing
The mass build-up of worldwide debt came to a head for whatever reason in 2008. We were on the verge of a great depression. The crisis called for swift emergency action. It initiated in the United States in a grand experiment known as Quantitative Easing, and was mimicked across the globe. Quantitative Easing is the process of printing money and using that money to buy assets from banks with intentions of cleaning up the banks' balance sheets and to lower interest rates. Interest rates declined to the lowest levels in history with many rates actually turning negative. This meant that lenders were paying borrowers to lend from them. (Unbelievable).
The U.S. formally ended this process in 2014. And, from the date the program ended in 2014 until the election in November, 2016, the U.S. stock market stalled. The gains that were made while Quantitative Easing was in force did not evaporate, but they did not expand. That is until the election day and throughout 2017 when the market was pricing in stimulus from tax reform.
B)     Share Buybacks and Dividends
Lowering corporate taxes is considered economic stimulus. Normally, you receive an economic stimulus when things are slowing down. The market rallied like a "dot com" year from the election day throughout 2017 out of belief that with Republicans in control of both Congress and the White House, a massive tax break was to be realized. What have corporations done with the windfall of cash resulting from lower tax rates? By and large, it has all been spent on dividends and stock buybacks. In lieu of investing in plants, equipment or other capital expenditures, companies are buying an inordinate amount of their own shares of stock. This means that there are far fewer shareholders than previously, and as a result, even if earnings remain flat, with fewer shareholders with whom to divide earnings, shares escalate. JP Morgan estimates that share buybacks in 2018 will exceed those of 2017 by 52%, and 2017 was previously a record breaking year. Notwithstanding the boost stocks get through buybacks and their magnitude, the U.S. stock market has been vacillating all year between gains and losses. It is unrealistic to expect records to continually be beaten, especially when their impetus was spurred by a one-time tax policy.