Stock Portfolios and Retirement Accounts Overvalued?

Written by Ken Burridge on 03 October 2019

Mainstream Media has been reporting (more like framing) the fact that publicly-traded companies have been buying back shares of their stock because they believe their company’s stock is undervalued. In these cases corporate management has decided to instead of spending cash on: employee salaries, research and development, advertising, new products and services, etc…they will go on the “open market” and buyback shares of their own stock—this creates a false demand and potential shortage for their company stock which causes a rise in stock price.

Sadly instead of spending excess cash like Apple (APPL) in many cases corporations have found it much easier to borrow money at very low interest rates, then use this borrowed cash to buy their stock—as the interest paid on the loan is less than the rise in stock price, so it is perceived as a good deal for the company (and top management’s stock options) and thus they have repeated this process many times during the last 10 years (ever since the last GFC).

Historically Corporate Stock Buybacks were considered illegal in the USA and were correctly considered to be a form of stock manipulation until they were made legal again by President Reagan (1982 SEC rule 10b-18).

Some Recent Corporate Stock Buyback Announcements in 2019:

https://www.marketbeat.com/stock-buybacks/2019/

Target (TGT), Microsoft (MSFT), Oracle (ORCL), Wells Fargo (WFC), Hanover Insurance Group (THG), Bank of America (BAC), Wells Fargo (WFC), U.S. Bancorp (USB), Apple (AAPL), Costco (COST), Best Buy (BBY), Home Depot (HD), Charles Schwab (SCHW), Cisco (CSCO) American International Group (AIG), Ross Stores (ROST), Foot Locker (FL), Big Lots (BIG), E*Trade (ETFC), and Eaton Vance (EV) etc.

However, these Corporate Stock buybacks are not the only source of stock value inflation in addition there have been stock purchases by some national central banks, which can print & create paper money out of the sky just like the USA’s Federal Reserve.

Stop and think about that for a minute: Central banks that can print money out of thin air are using this money to buy stocks!

Previously the Central Bank of Japan, Central Bank of Israel and the Swiss National Bank (SNB) have publicly disclosed stock investments. Bloomberg (June 11, 2019) also casually mentioned that “A quarter of central banks intend to keep buying stocks”.

FYI: Everipedia lists 200+ central banks operating in nearly every nation worldwide.

For Example the Central Bank of Switzerland just like other Central Banks in an effort to counter negative yields on bonds in their own countries for instance have been buying US Equities. These rising stock prices makes things look like these USA companies are doing great, but falling sales numbers, increasing layoffs and store closures tell another story.

Swiss National Bank (SNB) holds billions of USD worth of USA companies: Apple, Alphabet (Google), Microsoft, Amazon, Facebook, Exxon Mobile, Johnson & Johnson, Visa, Unitedhealth, AT&T, Chevron, Verizon, Home Depot, Pfizer, Intel, Procter & Gamble, Cisco, Coca Cola, Mastercard, Pepsico, Boeing, Merck, Netflix and McDonalds. All in all SNB holds: 87 Billion worth of USA stocks as of August 2018 according to Zero Hedge.

Unfortunately for many people with retirement accounts (401ks, IRAs, and Superannuations etc.) they are also heavily invested in some of the same equities that have had their prices pumped way up due to Corporate Stock buybacks and paper money (Fiat) printing and investing from various central banks worldwide.

To see if you are currently invested in a company that has been doing substantial Corporate Stock buybacks see the following:

Historical Corporate Stock Buybacks from marketbeat.com:

It may be wise to limit or diversify your exposure to these inflated assets ASAP. The Corporate Stock buybacks and direct equity investments from Central Banks have obviously made stockholders money especially in the last decade and also very likely inflated the price of stocks. However, the problem is that 80% of all stocks are mostly owned by the richest 10% of the population, so this has likely also only increased income inequality and caused the middle class to shrink even more due to stagnant wages and underemployment etc.

References:

Central Banks Boost Holdings of Equities Beyond 1 Trillion (Bloomberg)

https://www.bloomberg.com/news/articles/2019-06-11/central-banks-boost-holdings-of-equities-beyond-1-trillion

Everipedia: Central banks by country

https://everipedia.org/wiki/lang_en/List_of_central_banks

Disclaimer: This post is for informational and entertainment purposes only— it is not financial advice or is in anyway intended to provide any financial recommendation.

“Independent News Reporting by Ken Burridge”

Independent journalist, blockchain and sustainability activist, EV of the Year Judge, photographer, and author that has published over 1500 articles. Mr Burridge’s travels have taken him to over 40 countries and 300+ major cities. He is originally from the USA, but has been residing in Australia for the last eight years. Connect to Ken Burridge on: Twitter, steemit, facebook, minds, Linked in, Uptrennd, official website