Tuesday, September 13, 2016

Bank of England now buying corporate debt

The Guardian:

The Bank of England is to buy £10bn of bonds issued by private companies, including Apple and other overseas corporations, as it begins a dramatic expansion of its quantitative easing programme.
But the Bank has been accused of handing taxpayer cash to foreign corporations with little connection to the UK, which may simply hand the money back to shareholders.


“A lot of US corporates have been issuing bonds to finance share buybacks and dividends to shareholders. There can be absolutely no guarantee that the funds raised will be used to invest in the UK,” one senior bond dealer said, on condition of anonymity.

The Bank has said it will only buy the bonds of companies “making a material contribution to the UK economy”.

Sure they will. The central bank should not be buying any bonds. These central banks create money out of thin air and then buy these corporate bonds and under whose oversight? The companies turn around and buy back their stock in order to puff up earnings. The managements hit their earnings per share numbers (because of less shares outstanding) and get their bonuses and stock options.

The problem is they are buying back stock at a time when all these stock markets are overvalued. This is not going to end well. Nevertheless, as long as this nonsense continues the stock market can continue higher. As I said in this weeks podcast I expect the market to defy peoples expectations on how high it will go before this thing ends.

People need to be aware that if you have money in the US market you are picking up dimes in front of a steamroller. The market is at historically overvalued metrics and the only thing propping it up is schemes like this. As long as you understand then party on I guess.

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