In order to “save the world”, the Federal Reserve lowered interest rates to zero. It meant ostensibly, that companies that were laden with debt could refinance at advantageous rates. It also meant that those who “lived off the interest” saw their low-risk income dwindle to zero.
So Widows, Orphans and the incompetent or degenerate second and third generations of wealth had to find new income. But there was none, so they have been “living on the principal” for the past four years. It has served to eat away at the accumulated savings of the United States of America.
This policy was designed primarily to aid banks so they may rebuild their balance sheets after trillions in malinvestment. And now we have entered the second act in the “world with no yield.”
In this phase, corporations will eat through their savings in order to pay shareholders and keep them interested and happy. They are declaring special dividends from retained earnings or borrowing cheap money in order to pay dividends. These payouts are designed to attract the old yield-oriented investor because there is no place to get yield in the bond market without significant risk, even more so than ostensibly owning an equity.
So now corporate American and the world are burning through their savings to stay relevant. The Federal Reserve will burn through American’s cash in order to save the TBTF banks, and its working. Who will have to burn through their cash next? Will their be any left?
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Thanks Scott. You think we are heading eventual deflation? In any case, are you a buyer of gold?
seems as though “money” has painted itself into a corner. just have to stand and wait for, whose gonna get dried out.this is better than vaudville,and more clown acts yet to come.
When the SHTF, the only money left standing will be gold and silver.
Not true. Virtual currencies are planned to take over for the reserve currency and also regional and local currencies. It may be stated that it will be backed by gold, but no one will cash out for gold because all transactions will require virtual currency. Later on, gold will be disconnected from the virtual and then the inflation/dilution starts all over again for everyone but central bankers. Expect the virtual reserve currency to be based partly on carbon credits.
Read more at —
http://getmindsmart.com/NEWEC-virtual_currencies.html
If dividends are so important to keep shareholders happy, why do corporations spend twice as much money on buybacks?
because if you can remove shares from the float,you have less shares to buy on the open,thus making them worth more,because there is less.in theory,the price goes up. but that doesn’t always happen.and especially to ones that have more than a billion shares of common,sorta like all the big banks.
Oh I know how buybacks work and what they are used for.
My question is, why the big stink about the money being spent on dividends to keep shareholders happy when literally twice as much is spent on buybacks? Wouldn’t the opposite be true if corporations were trying to keep shareholders happy via providing meaningful yields?
“…incompetent or degenerate second and third generations of wealth had to find new income.”
The snag there is “Social Contract”.
If said … generations pay in blood, by principle and, WAIT, rule of law, then who charters said banks?
Banks?
There is a structural issue in assuming banks lack any loyalty oath of due care to the sovereigns who gave them birth; but I remain certain you have your reasons, justifiably indeed, Scott.
Thanks for a great read!
Well said. On point.
Scott, totally understand the argument and you are right if one just stays invested the way they were prior mega-low rates. But wouldn’t a smart money manager move some some money to assets that would perform in this environment. I guess metals would be one. no?
Start moving money over to virtual currencies. More details at http://getmindsmart.com/NEWEC-virtual_currencies.html
Not just metals and land as a hedge. Also virtual currencies. Expect this to happen…
rick santelli for president. all in family and life… fuck stocks.