"QE Backfires as Dividend Quest Usurps Growth: Cutting Research"

[applegrove]

QE Backfires as Dividend Quest Usurps Growth: Cutting Research

By Simon Kennedy at Bloomberg News

http://www.bloomberg.com/news/2012-11-30/qe-backfires-as-dividend-quest-usurps-growth-cutting-research.html

"SNIP........................................


Fulfilling the goals of central bankers such as Federal Reserve Chairman Ben S. Bernanke, ultra-low interest rates and bond purchases are encouraging investors to buy stocks. Policy makers’ intent was that asset prices and wealth would rise, encouraging consumers and businesses to spend more.

The sticking point is the particular equities investors are favoring, Robert Buckland, Citigroup’s London-based chief global equity strategist, said in a Nov. 21 report. His research suggests they tend to choose companies that issue dividends and buy back shares rather than those that invest in the economy.

“They’ll take a bigger dividend over a new factory, anytime,” Buckland wrote. “Policy makers may succeed in forcing capital into equities, but from their perspective, it is the wrong kind of capital: income seeking rather than growth seeking.”

U.S. companies spent $650 billion on share buybacks and dividends in 2011, compared with $580 billion for capital spending, the report said. In Europe, Citigroup found, the sectors that spent the most capital were given the lowest stock valuations by investors.


........................................SNIP"

[marmar]

1. It didn't take Yoda to foresee this.

[banned from Kos]

2. All true but so what?

QE is designed to spur investment. Investing in your own stock is just fine.

CapEx will follow right behind.

[applegrove]

3. At least the evidence is piling up. And posted in a publication business

types read no less. Maybe they will let it sink in that flushing money to the 1% doesn't necessarily mean more jobs. It just means more wealth for the 1%.

[banned from Kos]

4. QE is not flushing money to the 1%

Seriously, get a grip. Read some Krugman (who supports doubling QE).

[applegrove]

5. But if they are not building factories they are not building jobs. It wasn't

the investment class it was supposed to help. They were only the vehicle to help create jobs.

[banned from Kos]

7. OK I will explain quickly

What happens to the QE money newly printed? Is it distributed equally somehow?

No, it is not.


The Fed uses the new QE money to buy only 100% safe US government bonds. Nothing else. These bonds are only US Treasuries or GSE bonds - both 100% guaranteed.

So it DISPLACES the money that would otherwise buy those bonds, thus chasing that money into private investments that might be either CapEx or stock buybacks.

Thus QE is only intended to buy safe investments and make other money look for risk.

It is a beautiful system.

[applegrove]

8. Okay. How do you make it go more into capex? Cause buying back

stock just makes rich people richer. Who then buy more stock making rich people richer. Are the jobs being created abroad? Because I'm sure rich people invest more abroad than they every have these days. Jobs don't seem to be being created in the USA. I'm not against world trade but it seems to me that if it is the government guaranteeing the bonds then the payoff should be within the USA.

[banned from Kos]

9. Well you really can't.

President Obama tried by lowering CapEx taxes ( he allowed 100% depreciation in a single year).

But you are right. You can't force companies to invest. You can just make it attractive to. Solar is a good example. I support solar grants and rapid depreciation partly for jobs but mostly for Global Warming.

I I were King of the USA I would pay companies to invest in solar.

[applegrove]

10. Here, here

[Yavin4]

6. QE Means Lower Rates on Savings. Savers Are Getting Absolutely Nothing on their Money. So...

folks need dividends. A lot of investors are on fixed incomes, and they need cash flow from savings and investments to survive.