Why Stocks Are Soaring … Even though the Fed Stopped Quantitative Easing

The Answers Might Surprise You

Why are stocks still soaring, even though the Fed stopped QE?

Initially, QE arguably hasn’t totally stopped been stopped. And – of course – Japan’s massive QE is helping the Dow and S&P as well.

Additionally, several central banks are directly buying stocks.   They include the central banks of Switzerland, Japan, Israel, the Czech Republic, and a total of 23 percent of all nations worldwide.  (And it has long been rumored that the Fed buys stocks through proxies.)

Companies have also been buying back their own shares in record numbers.

Paul Buchheit notes:

In 1981, major corporations were spending less than 3 percent of their combined net income on buybacks, but in recent years they’ve been spending up to 95 percent of their profits on buybacks and dividends.

Business Insider points out:

Ever since the financial crisis, S&P 500 companies have spent about $2 trillion buying back shares of their own stock.

***

Goldman Sachs’ David Kostin believes a temporary pullback may explain why the S&P 500 has tumbled from its all-time high of 2,019 on Sept. 19.

“Most companies are precluded from engaging in open-market stock repurchases during the five weeks before releasing earnings,” Kostin notes. “For many firms, the beginning of the blackout period coincided with the S&P 500 peak on September 18. So the sell-off occurred during a time when the single largest source of equity demand was absent.


In other words, when companies stop buying so much of their own stock, the stock market goes down.

Business Insider continues:

“We expect companies will actively repurchase shares in November and December,” he writes. “Since 2007, an average of 25% of annual buybacks has occurred during the last two months of the year.”

Kostin believes the comeback in buybacks will drive the S&P to 2,050 by year-end.

cotd buybacks volatility

Why November and December?

Yves Smith explains:

Notice how the bulk of buybacks are concentrated in the fourth quarter, with the obvious intent of goosing prices at year end so as to lead to higher executive pay for “increasing shareholder value”? [Yup … it’s all about bigger bonuses.] In fact, these companies are being gradually liquidated. Issuing debt, which public companies have done in copious volumes since the crash, and using it to buy shares is dissipating corporate assets.

In addition, the vast majority of stock trades are done by high frequency trading computer programs.  It’s childs play for big players to manipulate the price of stocks (and every other market).

The Fed has admitted that one of its main policy objectives is to boost stock prices.  Many well-known financial analysts – such as Jeremy Grantham, Charles Biderman and Scott Nations – say that the feds manipulate the stock market. And see this, this and this.

And the government facilitates fraudulent acts and fraudulent accounting by big corporations, and always settles prosecutions for pennies on the dollar (a form of stealth bailout) … which allows the companies to avoid losses and to falsely inflate their valuations.

Facebooktwittergoogle_plusredditpinterestlinkedinmail
This entry was posted in Business / Economics, Politics / World News. Bookmark the permalink.
  • jadan

    When enough of the public understands that the market economy is a construct of the largest players and government, the free market advocates will have to abandon the silly notion of an “invisible hand”. Economic misery is created by the financial players; it is not the will of god or some other superstitious nonsense. The haves stick it to the have-nots. They could just as well get rid of their laissez faire self-justifications and economic misery would be reduced considerably, if not completely.

    • David Mowers

      Kinda like when a central bank digitally creates money and gives it away with flexible terms at no interest to billionaires so they can invest in speculative instruments?

      I thought Jesus wanted it this way?

    • socalbeachdude

      The US government has noting to do with stock markets other than regulating them in the US through the SEC.

      • jay67

        your delusional

        • socalbeachdude

          Nope. I am 100% correct. Obviously.

          • jay67

            try this for the beginning of an education. then also look at the Plunge Protection Team and TRY to find out how much they have also pumped into the ponzi scheme we call a market.
            http://www.forbes.com/sites/investor/2013/01/30/how-the-fed-is-helping-to-rig-the-stock-market/

          • socalbeachdude

            What utter nonsense. The so-called PPP hasn’t “pumped” a single penny into stocks. The huge influx of money into stock markets in the US over the past 6 years has gone from CORPORATE BUYBACKS OF STOCK FINANCED BY DEBT (BONDS). The US government and the Federal Reserve DO NOT BUY STOCKS.

          • jay67

            i said TRY to find out – you can’t it is not disclosed. If you have a link that proves that I look forward to seeing it. thx

          • Greg Myers

            Sorry but corporate buybacks are what is propping up the market now along with japan’s QE program now the last 6 years it was the government propping up the market with their illegal printing and dumping of money into it which by the way they are still doing it to some extent..

          • socalbeachdude

            Corporate buybacks have have been the prime mover of the markets along with manic speculaton for the entire past 7 years since March 2009. Corporates are now pouring 102% of their earnings plus vast amounts of borrowed money into stock buybacks and were putting in around 95% of their corporate earnings into dividends and stock buybacks for the entire time period since March 2009.

            In the US, government has nothing whatsoever to do with the stock markets and 100% of the Federal Reserve QE funds have always remained inside the Federal Reserve in the excess reserves accounts of the banks there from whom the Federal Reserve purchased securities.

            There was nothing “illegal” at all about the Federal Reserve versions of QE not was there anything “illegal” at all about Japan’s BOJ operations. Where those operations were ill-advised or not (they were) does not make them illegal at all.

          • moonma

            ROBOT!!!

        • Josh

          *you’re

    • socalbeachdude

      Those are totally false and bogus assertions.

      • moonma

        You are a Fed Robot

      • moonma

        Federal Reserve Members have publicly stated their goal of obtaining a “wealth effect” from their emergency stimulus measures approximately 2,348 times yet you say they have no effect on our economy at all? LOL!

      • moonma

        So the 100,000 trillion man hours humans have spent discussing whether the Fed will raise Interest Rates has been a total waste of time and resources because the Fed has absolutely no bearing on our economy? Jumbo Jet Janet Robot Clone you will also burn for what you’re doing!!!

  • David Mowers

    The power of money can change lives but not the majority of lives because God doesn’t want everyone to succeed.

  • Joe Lizak

    Do you really believe the money give away to banksters has stopped? I don’t believe it for a second. Bankers are still stealing the money only under a different name other than Q.E. They probably branded it top secret and cited “national security” saying an economic collapse will occur unless the banks get their free money. There’s no way in hell banks get $85 billion bucks per month and then the rug gets pulled from under their feet. No way…not gonna happen.

    • socalbeachdude

      Where on earth do you come up with such utterly bogus nonsense, Joe?

      First, the banks were NOT “GIVEN” a single penny by the Federal Reserve. The banks merely SOLD SECURITIES ASSETS THEY HAD TO THE FEDERAL RESERVE IN EXCHANGE FOR CASH PROCEEDS.

      Second, 100% of the cash proceeds from the securities sales to the banks with QE WENT INTO THEIR EXCESS RESERVES ACCOUNTS AT THE FEDERAL RESERVE WHERE THEY HAVE ALWAYS REMAINED PARKED and the balance in those accounts is now around $3 trillion.

      Third, NOT A SINGLE PENNY OF QE FUNDS WENT INTO STOCKS as those funds have always remained INSIDE THE FEDERAL RESERVE.

      FEDERAL RESERVE VERSION OF QE EXPLAINED:

      1) Federal Reserve buys securities from banks

      2) Federal Reserve deposits cash proceeds in excess reserves accounts of those banks at the Federal Reserve

      3) Securities stay parked on assets side of Federal Reserve GL

      4) Proceeds funds stay parked on liabilities side of Federal Reserve GL in the excess reserves accounts of the banks at the Federal Reserve

      The process is an ENTIRELY CLOSED LOOP just as if it were done inside a VACUUM.

      http://www.federalreserve.gov/releases/h8/current/

      http://www.federalreserve.gov/monetarypolicy/bst_fedfinancials.htm

      How many times does this have to be stated before it actually sinks in, folks?

      The QE funds are sitting parked in the excess reserves accounts of the banks and none of them ever got into the economy at all as is clearly established y the evidence on that matter. The total amounts in those excess reserves accounts now exceeds $2.5 trillion.

      EXCESS RESERVES ACCOUNTS OF BANKS TOP $2.5 TRILLION – WSJ

      So what exactly are excess reserves, and why should you care? Like most central banks, the Fed requires banks to hold reserves—mainly deposits in their “checking accounts” at the Fed—against transactions deposits. Any reserves held over and above these requirements are called excess reserves.

      Not long ago—say, until Lehman Brothers failed in September 2008—banks held virtually no excess reserves because idle cash earned them nothing. But today they hold a whopping $2.5 trillion in excess reserves, on which the Fed pays them an interest rate of 25 basis points—for an annual total of about $6.25 billion. That 25 basis points, what the Fed calls the IOER (interest on excess reserves), is the issue.

      http://online.wsj.com/news/articles/SB10001424052702303997604579238403178592262

      • No the FED has been holding the bonds as collateral and supplying loans of credit to the primary dealers…since the primary dealers theoretically are going to buy the bonds on the FED balance sheet in the future…with credit or profit they extract from all of you.
        when it became profitable to do so…like when the markets collapse and the banks get out first…

        the banks will short the markets to oblivion at some point and long bonds…the some point is where we are headed…to the next engineered event

        The top or master does all the buying/hiring selling/firing…the bottom or slaves follow along and speculate.

        The masters or clubbers sell the clubbing…the baby seals or slaves buy the clubbing.

        “Head-Smashed-In Buffalo Jump is an archaeological site known around the world as a remarkable testimony of the life of the Plains People through the millennia. The Jump bears witness to a method of hunting practiced by native people of the North American plains for nearly 6,000 years.”

        “Due to their excellent understanding of the regional topography and bison behavior, native people hunted bison by stampeding them over a precipice. They then carved up the carcasses and dragged the pieces to be butchered and processed in the butchering camp set up on the flats beyond the cliffs.”

        • socalbeachdude

          You are certainly filled with an ARRAY OF WILD IMBECILIC DELUSIONS which are utterly bogus and totally laughable.

      • Joe Lizak

        When banksters sold home loans to jobless drunks, addicts and losers….and knew full well they would never pay back the loan….everyone along the way got rich on “fees”. Then banks like Goldman Sachs made casino bets those loans would fail and made billions. Meanwhile to clear up the bankers toxic books they FED bought it all at a ridiculous 100% on the dollar ripping off tax payers. 85 billion dollars per month for like 2 years…every month. And you are trying to justify this with your stupid closed loop explanation. Everythings accounted for? Bull sheit. Go back to surf’in.

  • socalbeachdude

    The Federal Reserve has absolutely nothing whatsoever to do with the stock markets.

    • jay67

      another cnbc troll

      • socalbeachdude

        False. The US government and the Federal Reject DO NOT “INJECT” A SINGLE PENNY OF MONEY INTO THE EQUITIES MARKETS. The Federal Reserve (unlike the Bank of Japan) is PROHIBITED FROM ENGAGING IN EQUITIES (STOCK) TRANSACTIONS. The US government DOES NOT BUY STOCKS and only took equity positions in a very few companies as a last resort (such as AIG and GM) when those companies essentially failed in 2008.

        Most of the money buying stocks comes from HUGE HEDGE FUNDS, INSURANCE COMPANIES, RETIREMENT AND PENSION FUNDS as well as corporations, individuals, endowments, and a host of other participants both domestic and foreign. The total value of all stocks now based on market capitalization is around $50 trillion globally with the largest portion of that being in the United States. The bond markets are vastly larger than the stock markets with total bonds in the US and globally of around $200 trillion. Funds slosh back and forth frequently between the stock and bond markets.

    • Erin Anderson

      The easy currency that the Fed Reserve is pumping into the economy is propping up the stock market right now

  • The central bank is a middle man between the US Treasury and the commercial banks.
    The treasury issues bonds as directed by congress and uses them as collateral for the creation of credit by the Federal reserve or loan.
    Bond is shot for bondage…The constitution written by a group of men calling themselves we the people in Manhattan on wall street…gave a thing they called congress to enslave the population of the USA or putting them into bondage by issuing bonds from the US Treasury.
    Alexander Hamilton was a banker and city of London asset who helped set the entire financial system up.
    He is buried on wall street…the first US congress was on wall street…and the fist thing they did was count the votes that elected George Washington, a British east India company asset, the first president of the USA on march 4th 1789
    Then the Federal reserve sells the bonds to the primary dealers…the top money center banks…which inflate their balance sheets with loans of credit to all of you…for mortgages or death pledges…and the profit or yield they extract from all of you is used to buy the bonds from the federal reserve…
    zeroing their balance sheet…since the credit they create out of thin air to loan to the US government through the US Treasury that was set up by alexander Hamilton…the city of London asset and new your banker…returns back into thin air when the primary dealers buy the bonds.
    The purpose of the QE was to keep the banking system in the USA and world from imploding to oblivion…since in 2008…the population of the USA became negatively yielding.
    Bretton woods in 1944 set the USA up as the supply of inflation and the rest of the world the demand for it.
    after 64 years of compounding or exponential growth…the USA reached maximum potential.
    the demand of the population for inflation from the population of the USA became greater than the inflation supplied to the population of the USA…cutting off the supply of yield to the banking system…and the USA along with the rest of the world began to implode to oblivion…the QE plugged this hole.
    basically where the US population was supplying a real 0…the FED covered it with a fake 1…along with the late 2008 G20 where the puppet leaders of the world were told by their globalist masters to implement the greatest global economic intervention in history…so that the globalist masters could catch you all falling to you doom with their invisible hand on march 6th 2009…to engineer the bounce up to here.
    To sustain you all so you can fill the internet with your worthless speculations as to what is going on.

    • socalbeachdude

      Your assertions are TOTALLY FALSE. You obviously have zero comprehension as to what the Federal Reserve version of QE was and what it wasn’t.

      We are in a GLOBAL DEFLATIONARY SPIRAL and the value of the US dollar has been SOARING UPWARDS for the past 4 years in both purchasing power against nearly all of the 27 major commodities and on the DXY and is continuing to do so and will continue to do so for the foreseeable future.

      FEDERAL RESERVE VERSION OF QE EXPLAINED:

      1) Federal Reserve buys securities from banks

      2) Federal Reserve deposits cash proceeds in excess reserves accounts of those banks at the Federal Reserve

      3) Securities stay parked on assets side of Federal Reserve GL

      4) Proceeds funds stay parked on liabilities side of Federal Reserve GL in the excess reserves accounts of the banks at the Federal Reserve

      The process is an ENTIRELY CLOSED LOOP just as if it were done inside a VACUUM.

      http://www.federalreserve.gov/releases/h8/current/

      http://www.federalreserve.gov/monetarypolicy/bst_fedfinancials.htm

      How many times does this have to be stated before it actually sinks in, folks?

      The QE funds are sitting parked in the excess reserves accounts of the banks and none of them ever got into the economy at all as is clearly established y the evidence on that matter. The total amounts in those excess reserves accounts now exceeds $2.5 trillion.

      EXCESS RESERVES ACCOUNTS OF BANKS TOP $2.5 TRILLION – WSJ

      So what exactly are excess reserves, and why should you care? Like most central banks, the Fed requires banks to hold reserves—mainly deposits in their “checking accounts” at the Fed—against transactions deposits. Any reserves held over and above these requirements are called excess reserves.

      Not long ago—say, until Lehman Brothers failed in September 2008—banks held virtually no excess reserves because idle cash earned them nothing. But today they hold a whopping $2.5 trillion in excess reserves, on which the Fed pays them an interest rate of 25 basis points—for an annual total of about $6.25 billion. That 25 basis points, what the Fed calls the IOER (interest on excess reserves), is the issue.

      http://online.wsj.com/news/articles/SB10001424052702303997604579238403178592262

  • Thomas

    Yes, and soar they are! In my opinion, equities is the 1%’s store for wealth until

    further notice. It is no secret QE programs need to be bailed-in. How? Most public

    and private pension managers are steering pensions into alternative investments using

    South Carolina’s retirement system for example. Will they crash the stock market? No.

    Will they crash derivatives? Yes. Then they legislate pensions out of alternative

    investments into US Treasury pooling in 50 billion chunks with 8.5% annual return.

    They will have authorized agents manage the estimated 13 trillion in pensions.

    Equities are being priced away from small investors. Equities is the new gold

    standard. They have complete control of equities. They are selling gold and silver to

    anyone stupid enough to think PM prices will not be frozen (manipulated) as low or

    lower than they are today.

    See theH.R.710 — Public Retiree’s Investment Act of 2009

  • Socialbeachdude

    H=8

    Y=25

    P=16

    E=5

    R=18

    8+25+16+5+18 = 72

    T=20

    I=9

    G=7

    E=5

    R=18

    20+9+5+7+18=59

    72+59 = 131

    I created Hypertiger in 1988…the first 33 primes add up to 1988

    to run around in the matrix…I helped build the tool you use play with toy around with me.

    Malaysian Airlines Flight 370 vanished into the black hole on March 8th, 2014

    Malaysian Airlines Flight 17 was shot down and crashed on July 17th, 2014

    M=13

    A=1

    131

    March 8th to July 17, 2014 = 131 days.

    131 is the 5th prime in which the numbers that comprise the prime add up to 5

    3rd prime = 5

    9th prime = 23

    13th prime = 41

    30th prime = 113

    32nd prime = 131

    5+23+41+113+131 = 313

    3/13…that was the peak of Gold for 2014..lok it up

    7/17…is when flight 17 was shot down.

    7 x 17 = 119 = obverse reverse = 911

    313+131 = 444

    37 x 12 = 444

    313+717 = 1030/2 = 515 = zero point

    119+911 = 1030/2 = 515 = zero point

    5/15?

    May 15 is the 135th day of the year.

    135+531 = 666

    37 x 18 = 666

    May 15th, 2014-First Family Barack and Michelle Obama and numerous political figures visit and dedicate the memorial with the victims on Ground Zero

    George Washington was born on February 22 or 2/22

    “The George Washington Masonic National Memorial is a Masonic building and memorial located in Alexandria, Virginia, outside Washington, D.C. It is dedicated to the memory of George Washington, the first President of the United States and a Mason. The tower is fashioned after the ancient Lighthouse of Alexandria in Egypt. The 333-foot (101 m) tall memorial sits atop Shooter’s Hill (also known as Shuter’s Hill) at 101 Callahan Drive”

    222+333 = 555

    “The Washington Monument is an obelisk on the National Mall in Washington, DC, built to commemorate George Washington, once commander-in-chief of the early Continental Army and the first American president.”

    “The monument, made of marble, granite, and bluestone gneiss, is both the world’s tallest stone structure and the world’s tallest obelisk, standing 555 feet 5 inches.

    February 22 is the 53 day.

    3 x 5 = 15

    37 x 15 = 555

    555 feet in inches = 6660 plush 5 = 6665

    Hypertiger = 131

    66+65 = 131

    73/9 = 8.11

    37/9 = 4.11

    811+118+181 = 1110

    411+114+141 = 666

    1110+666 = 1776

    “The Illuminati (plural of Latin illuminatus, “enlightened”) is a name given to several groups, both real and fictitious. Historically, the name refers to the Bavarian Illuminati, an Enlightenment-era secret society founded on May 1, 1776″

    May 1 = 5/1 or 5.01

    37 x 36 = 1332 x 5 = 6660

    133.2 x 5 = 666

    133 x 5.01 = 666

    My real name is Michael = 51.

    http://2.bp.blogspot.com/-0iCXI0bON8M/U-pADb5stDI/AAAAAAAAAW8/JGUthKoH3MI/s1600/800px-DJIA_Trading_Volume23a.jpg

    • Sam Spade

      You seem to know a lot… except about what’s going to happen in the future.

    • Dr. Theopholus

      Have you ever considered getting a prescription for lithium?

  • Joe

    Socialbeachdude doesn’t knows what he’s talking about. The FED was using made up funds to buy back treasuries and MBS’s at a premium which gave money to central banks which they used to buy stocks. The stock market being where it is today is a result of the FED and it’s QE helping to pump it up. He says all they do is loan money short term to banks which in the had been their main function along with lowering or raising the overnight FED funds rate the banks had to pay. Again,….the FED just hits a few keystrokes and they have another trillion dollars. It’s all totally made up out of thin air.

    And to say that the FED is accountable to Congress is about as true as saying Obama is accountable to Congress. Socialbeachdude only seems to have a rudimentary understanding of what the FED has done.

    And to say the FED is audited is lunacy. They make up money and publish their own reports. Who audits them? That’s like Holder “investigating” Obama.

    Apparently socialbeachdude is a democrat who loves Obama as well. Didn’t work so well for Barry in Nov huh?

  • zionexit

    The Federal Reserve destroyed me. They said the anti-stimulus POMO was going to end in 2010. Being the market soared on no structural improvement to the economy and noting PE ratios at the end of 2009 were still too high relative to historical measures for an economy in the toilet, short selling the market after having our bank interest taken away by the Fed was the most sensible thing to do. Ah, but the Fed then continued their anti-stimulus operation into 2011, 2012, 2013, and even to 2014. The Fed promised numerous interest rate hikes immediately after ending the anti-stimulus POMO but I see only one in nearly 2 years now. Value investors far on the correct side of fair value for this masked depression of actual deeply negative real GDP growth upon GAAP for each of the past 8 years were unjustly forced to lose.

    Fed: make a fund to compensate all those whom you maliciously mowed over!