We had a trifecta yesterday for the stock market. Unlike a horse race trifecta where there is a 1st, 2nd, and 3rd place, a stock market trifecta is one where everyone finishes in first place. Everyone wins! Right?
Isn't that the world we live in. Everyone wins. There is no second place, and most assuredly no last place. Our society has fostered a mentality that failure is impossible. Win or lose you win, winning is the only outcome. A medal for everyone. And in such a world reality becomes impossible to stomach. Central Banks around the World are in the business of doing the same thing. Failure is not an option.
The stock market is telling you the World has never been better, right? If everyone is buying stocks, surely the economy is stronger than its ever been before. Everyone isn't buying stocks. This isn't 1999 or 2000. Those buying stocks are the corporations themselves, via ever increasing stock buyback programs. Central Banks are backing up the truck on the stock market.
The Bank of Japan owns half its countries ETF's
The biggest buyers of the stock market aren't those struggling to live in this 'robust' economy. They are the corporations, executives, Central Banks, and wealthy who have seen their bank accounts swell to record sizes while the other 99% of the World just fight to survive paycheck to paycheck.
Where is all the money coming from to buy the stock market at record highs? Aside from the creation of fresh money out of thin air, the corporation are utilizing once in a lifetime interest rates to finance massive share repurchases of their stock.
The level of Corporate debt has never been higher. With interest rates still at abnormal levels, interest payments remain artificially low. Central Banks have done such a great job at distorting the bond market that no one wants to sell their bonds. The U.K tried earlier this week via its freshly launched QE program and didn't find all the bonds they were looking for. The biggest holders of these bonds are the central banks themselves. Corporate debt has been the next target for Central Banks. The ECB has gone so far as to even buy Corporate junk bonds.
7+ years after the financial crisis, with asset prices around the globe at record highs and Central Bank are buying Stocks and Junk Bonds amid a negative interest rate landscape that they themselves created?
The Bubble is in the Bond Market. And it is fueled yet again by Central Banks who want everyone to have a medal. 7+ years of sticking a pacifier in the mouth of the market every time it starts to cry.
In 2007 Consumers were using the Housing Bubble as a piggy bank.
In 2016 Corporations are using the Bond bubble as a piggy bank to buyback stock, hand out ever increasing dividends, and augment their share price higher.
Amid a low interest rate environment it is one happy love circle. Shareholders are happy, executives are happy, investors are happy, everyone gets a medal. But when all of that happy debt needs to get refinanced at a higher rate it will send the first domino over... one that will ultimately trigger the popping of the biggest bubble we have ever seen. One that the Central Banks will not be able to fix by printing more money out of thin air.
Till Debt Do Us Part....