What's Propping Up Stock Market?
President & CEO Charles Biderman discusses how
global financial markets are suffering from years of
borrowing to pay entitlements to citizens, stock
buybacks by corporations, and other topics in a short
had predicted a collapse in equity markets but says
stochttp://beta.blogger.com/img/blank.gifk buybacks by
corporations have, for now, prevented that collapse.
"In 2009 with interest rates dirt cheap companies have
sold around $3 trillion in bonds and about $800 billion in
new shares. Companies are currently the only buyers of
stocks as individuals remain net sellers. $2 billion a day
of company buying can take the market higher. That is
until companies stop buying and start selling lots of new
a link if the video does not play: Biderman's
Daily Rant for 11/3/2011
For every buyer there is a seller and vice versa.
Moreover, stocks can go up or down whether corporations
are buying or selling. However, it is important to note
that the frequently touted corporate "cash on the
sidelines" is for the most part debt.
A handful of tech companies with huge piles of cash and
little debt is the exception, not the rule.
raise "bailout" money the EFSF sells bonds. In its first
auction after the new Merkozy agreement, not enough
investors wanted the garbage and the fund ended up buying
some of its own bonds.
The European Financial Stability Facility
(EFSF) last week announced it had successfully sold a
€3bn 10-year bond in support of Ireland.
However, The Sunday Telegraph can reveal that target
was only met after the EFSF resorted to buying up
several hundred million euros worth of the bonds.
Sources said the EFSF had spent more than € 100m
buying up its own bonds to help it achieve its
funding target after the banks leading the deal were
only able to find about €2.7bn of outside demand for
The failure of the EFSF will increase pressure on
the European Central Bank to effectively become the
lender of last resort for the eurozone, a move it
has strongly resisted.
The EFSF raises money by selling bonds that few investors
want. So it buys its own debt effectively raising no cash.
Is this supposed to work?
Given there are still no terms on the EFSF debt,
agreements on leverage, amount of guarantees, etc., the
amazing thing is not that the EFSF had to buy some of its
debt, but rather anyone else was interested at all.
This helps explain why the IMF went on a tour of Russia
and China begging them to buy the garbage. No one else
wants it, and the EFSF suspected as much in advance.