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In Reply to: That's right. FEDs are buying corporate bonds left and right... posted by kuma on May 12, 2020 at 20:11:59:
Take the first example I listed for I51 - Apple. They don't need any propping up. Apple has $200B cash on hand, and they just borrowed $8.5B more from the Fed at 0.75% The reason disclosed in the filing was for stock buybacks and dividends.
If the Fed really wanted to prop up American businesses, they would buy securities from banks who could issue near zero rate small business loans and bundle up the debt to sell to the Fed.
But instead, they're stimulating the stock market, which was already in bubble territory before the pandemic. I reduced my contributions to stock-heavy funds late last year because prices were overvalued. Since then I've been accumulating cash. I think the market is way too risky right now. The crash in March was overdue and just needed a trigger to kick it off. The market should have stayed down, factoring in the economic contraction, but then the Fed stepped in and promised unlimited free loans. That has driven the market indices to recover > 50% of their March losses. More worrying though is that the market valuation is at the highest level since the dot-com bubble.
It's created an opportunity for the investment banks, large private equity funds, and other major investors to recoup most of their losses from March, and then get out. The 401k holders, pension funds, endowments, and the like will be hurt bad when it comes crashing back down.
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Follow Ups
- The Fed is propping up the market and that's about it - Dave_K 05/13/2007:31:15 05/13/20 (0)