Skip to main content
  1. News
  2. Business & Finance
  3. Stock Market

Companies bought back their own stocks in 2013 to the tune of half of Fed's QE

See also

There is a general consensus from many alternative economists that the true purpose of Quantitative Easing (QE) by the Federal Reserve has to siphon the wealth of the nation into the hands of banks and corporations. This belief could not be more prevalent than in a new report on Jan 6. which shows that corporations drove up the equity markets to new all-time highs primary through the buying back of their own stocks to the tune of $500 billion, which interestingly enough, happens to be half of the total amount of liquidity the Federal Reserve added to the economy in 2013.

Everyone knows that the Fed, through the bank excess reserves/cash deposit pathway, participated in indirectly purchasing some $1 trillion in risk assets in 2013 through POMO - a process that many have confused with economic recovery. It is also known that corporate stock buybacks have managed to keep S&P500 EPS rising by removing the total number of shares outstanding.

However, what may not be known is just how large the total amount of corporate buybacks in the past year was. The answer: the second highest in history, just shy record of 2007 (when there was no additional $1 trillion in stock purchases coming from the Fed/Primary Dealer complex), amounting to $500 billion. - Zerohedge

The Federal Reserve QE amounted to $1.020 trillion in 2013, and was tightly held by the banks in bonds, equities, corporate lending, and at the central bank itself. Very little of this newly printed money supply reached the general economy, and even less was spent to create new jobs or improve growth. Thus the drivers for the stock market since 2011 have been corporate buybacks, cheap money loaned to the banks at near zero interest, and the rise of asset inflation as the dollar has been devalued because of QE.

Analysts in the mainstream have been lamenting the fact that very few retail investors came back to the stock markets after the crash of 2008, and the bear market that saw equity prices fall more than 40%. Thus without the catalyst of individual investors and increased deposits in retirement funds driving stock prices, the markets have risen primarily due to internal trading algorithms, and as noted, massive corporate buybacks.

As the Federal Reserve hints at slowing down the QE money printing spigot, stock markets are testing the waters to see if they can hold their prices without the addition of cheap money. And while the fear of inflation and higher interest rates rear their heads in the price of Treasuries, the possibility of a stock market collapse, or even a large correction, looms much greater as many investors will head to the door when they fully believe the central bank no longer will support the stock market bubble.

Advertisement