Buybacks Are an Endangered Species. Will the Fed Buy Stocks?
This is a year when unthinkable events have become commonplace. That has some investors wondering if the Federal Reserve could end up making what was previously an unthinkable move: purchasing stocks. Vincent Deluard, global macro strategist for brokerage INTL FCStone, joins the “What Goes Up” podcast this week to share his views. Highlights of the discussion are below.
On the threat to corporate buybacks and the recent surge in buying from retail traders:
“There will be some buybacks, maybe like Microsoft or some other companies will do buybacks, but by and large buybacks as the main marginal buyer of stock is a story of the 2010s. And that will leave a permanent $500 billion-plus gap in the equity supply-and-demand picture … So as you remove that, you will need to fill it. I don’t think the retail bid, this is a cute story and I’m glad people are making money, but I don't’ think it’s a sustainable source of demand. I only see one possible actor, and that’s the Fed.”
On if there’s a market level that would prompt the Fed to buy equities:
“I’m sure it’s there, but it’s there I think at a lower price point. Nothing surprises me anymore, but it would surprise me if at 10% below the all-time high, the Fed says ‘OK, you know what we’ve got to do? Buy stocks.”
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