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  Talk Elections
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  Economics (Moderator: Uncle Ruckus, No Relation.)
  Federal Reserve Might Eventually Have to Start Purchasing Stocks
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Author Topic: Federal Reserve Might Eventually Have to Start Purchasing Stocks  (Read 1124 times)
Virginia Yellow Dog
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« on: June 16, 2020, 09:05:23 pm »

Scott Minerd: S&P 500 could crumble by 50%, forcing the Fed to start buying stocks
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Blue3
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« Reply #1 on: June 17, 2020, 12:48:29 am »

Ugh.
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True Federalist
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« Reply #2 on: June 17, 2020, 08:42:38 am »

He's apparently an idiot who doesn't understand why the Fed has intervened in the debt market. It wasn't to prop up the debt market, tho that was a side effect, but to ensure that businesses could obtain needed capital by issuing new debt at rates they could afford. Buying equities in the secondary market wouldn't help businesses obtain capital.
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Santander
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« Reply #3 on: June 23, 2020, 11:25:20 am »

He's apparently an idiot who doesn't understand why the Fed has intervened in the debt market. It wasn't to prop up the debt market, tho that was a side effect, but to ensure that businesses could obtain needed capital by issuing new debt at rates they could afford. Buying equities in the secondary market wouldn't help businesses obtain capital.

I'm pretty sure the chief investment officer at Guggenheim, a highly respected firm, knows what he's talking about. The Fed is, essentially, becoming a sovereign wealth fund, and it's a pretty common belief among leading people in finance that they may start buying ETFs. Propping up stock prices can help firms raise capital (issuing new stock), and perhaps more importantly during these times, defend against takeovers, and even defend against activists. Not to mention the economic effects of the stock market tanking.
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True Federalist
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« Reply #4 on: June 23, 2020, 02:46:51 pm »

He's apparently an idiot who doesn't understand why the Fed has intervened in the debt market. It wasn't to prop up the debt market, tho that was a side effect, but to ensure that businesses could obtain needed capital by issuing new debt at rates they could afford. Buying equities in the secondary market wouldn't help businesses obtain capital.

I'm pretty sure the chief investment officer at Guggenheim, a highly respected firm, knows what he's talking about. The Fed is, essentially, becoming a sovereign wealth fund, and it's a pretty common belief among leading people in finance that they may start buying ETFs. Propping up stock prices can help firms raise capital (issuing new stock), and perhaps more importantly during these times, defend against takeovers, and even defend against activists. Not to mention the economic effects of the stock market tanking.

The Fed should have no concerns about takeovers or activists. Any effect on propping up IPO prices would be because the market came to believe that the Fed would continue to purchase equities for the foreseeable future, and an open-ended spigot would be a bad thing. While I can understand why some people would hope the Fed would do this, but unfortunately for them, the Fed has so far understood the difference between Wall Street and the economy. Inflating equity prices wouldn't help the economy or add to liquidity, just add to inflationary pressures. So far, there's been nothing indicating that equity markets lack liquidity, they just aren't having the continuously rising valuations that some idiots thought was the new normal. The Fed has no mandate to keep stock prices rising, nor should it. Economic prospects are worse than they were a year ago, so stock prices should be down. If they weren't, something would be seriously wrong with the market. Equity markets are functioning as they ought to under current circumstances, and they aren't even close to breaking down, so there's no need for the Fed to intervene in the equity markets just to save a CIO's bonuses or enable private equity firms to flip companies on their predetermined timelines despite the poor economy. It would undoubtedly help Mr. Minerd and those like him if the Fed were to do as he suggests, but I don't see where it would help the economy, and that's what the Fed should be basing its decisions upon.
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Santander
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« Reply #5 on: June 23, 2020, 04:37:16 pm »

He's apparently an idiot who doesn't understand why the Fed has intervened in the debt market. It wasn't to prop up the debt market, tho that was a side effect, but to ensure that businesses could obtain needed capital by issuing new debt at rates they could afford. Buying equities in the secondary market wouldn't help businesses obtain capital.

I'm pretty sure the chief investment officer at Guggenheim, a highly respected firm, knows what he's talking about. The Fed is, essentially, becoming a sovereign wealth fund, and it's a pretty common belief among leading people in finance that they may start buying ETFs. Propping up stock prices can help firms raise capital (issuing new stock), and perhaps more importantly during these times, defend against takeovers, and even defend against activists. Not to mention the economic effects of the stock market tanking.

The Fed should have no concerns about takeovers or activists. Any effect on propping up IPO prices would be because the market came to believe that the Fed would continue to purchase equities for the foreseeable future, and an open-ended spigot would be a bad thing.

Takeovers destroy value and reduce competition. And issuing stock is not limited to IPOs. Now, whether these things are within the purview of the Fed or not is debatable, but it's not purely to inflate asset prices, and central banks around the world are already doing it.
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True Federalist
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« Reply #6 on: June 23, 2020, 09:04:47 pm »

Takeovers destroy value and reduce competition.

I'll grant that takeovers often lead to siphoning off value, but destroying value?

As for competition, the Fed is not there to be a substitute for the anti-trust division of the Justice Department.

So even if I accepted the truth of what you think takeovers do, I don't see where it's any concern of the Fed.
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