The argument of the article is basically "our bull market can't continue" without noticing that "our bull market" has been flat since 2014. The argument is basically that because money has cost essentially nothing to lend or borrow, making money by lending money has become impossible and the risk of borrowing money has dropped to nothing therefore something something ball of flame. The Sandy Coufax jibe is a clumsy swipe at "quantitative easing" which is "the government shoves piles of money into the banking system to make it easier for people to lend and borrow" because Ben Bernanke wanted to stave off another Great Depression so badly that he brought up Milton Friedman's "helicopter drop" of cash thus earning him awesome cartoons like this: Thing is, 70% of the world's money is currently under negative interest rate policy. Japan, Germany, France, Switzerland, all are charging banks money for lending it out and we still don't have the bottom in sight. It's also assuming that at some point the Fed will go "whelp, that didn't work, back to business as usual!" and raise interest rates and crush the economy because something something reasons. The bottom line is this, though: the Fed has made cash far more available than ever before in an attempt to get companies to invest and spend and do economics-ey things. What they've done instead is buy back their own shares. This is corporations effectively inflating their own stock price which is a whole 'nuther discussion, but one in which it does make sense to be skeptical of investment possibilities. My beef is that the time to go to cash was a couple years ago, there have been no real signals that now is a better time than later, and if you're going to cash, you're giving up on dividends which are actually pretty goddamn healthy right now. I'm pretty much in cash and long-term dividend-bearing government ETFs right now, but I'm not expecting to stay there for the rest of the year.
Share buybacks have actually done something a lot worse than just inflate stock price. All these buybacks have loaded company balance sheets with short/med term bonds. These are benign right now but as soon as interest rate environments tighten they are at a risk runaway debt cost explosion. Here is a quick explanation of how it can happen: Lets say you started Pozi Coffee Co 20 years ago selling hipsters Folgers repackaged into a fancy "green" containers. You made a sizable profit and could reasonably afford to service 1Mil in debt at 8% interest back in 96 you also have outstanding shares. Now a couple years later interest rates are down to 4% so now you can now service 2 million in debt. You buy back a bunch of your shares for that extra million. You aren't any more profitable but you can afford to carry a bunch more capital costs and pay yourself a nice bonus. Repeat this again at 2% you can now carry 4 mil and buy back another 2mil while still making the same profit. At this point you are basically dead as soon as interest rates go up, but you can continue as long as rates stay the same or keep going down. You can theoretically offer to issue more stock but who will want to buy stock from a company that that needs to issue to prevent default so the buyback process is a 1 way street. If there is only one ponzi coffee co in the world that's not really an issue there is enough robustness in the system to absorb it. But what if there are hundreds, thousands of them? Large companies such as GE, Chrysler, IBM, HP? Can the fed really risk blowing them up but removing liquidity? Thats why where in such a conundrum and the FED has no idea what to do next. They must unwind these low interest rates since its bankrupting pension, and insurance companies but doing so will blow too many large systematically important players. There is not enough capacity to absorb that much debt implosion. Hence the bull market cant continue but the bull market must continue. If you think that cash is then short term government bonds is probably the smarter play. The game of how low can you go apparently can go below zero so there is potential to "profit" even from a 0% bond.
What they've done instead is buy back their own shares. This is corporations effectively inflating their own stock price which is a whole 'nuther discussion, but one in which it does make sense to be skeptical of investment possibilities. So this whole tactic has allowed companies to lie about their real world value?The argument of the article is basically "our bull market can't continue" without noticing that "our bull market" has been flat since 2014. The argument is basically that because money has cost essentially nothing to lend or borrow, making money by lending money has become impossible and the risk of borrowing money has dropped to nothing therefore something something ball of flame.