Welcome to the end of the week and another edition of Happy Hour! Just sit back, relax, and enjoy your end of the week roundup of all things interesting in the land of money.
One driver of stock prices is supply. Now I don’t want to get into the supple/demand explanation. Basically, much of the price movement or big price movement is based on the number of shares available.
This was very clear during the dot-com price spikes in the ’90s. New companies would IPO such a small portion of its shares, demand would outweigh supply, and prices would escalate.
Why is this important?
The increasing amount of stock buyback announcements will eventually impact share supply. If it hasn’t already. The fact that the better run companies are doing most of the buying, only heightens demand for those companies. Who doesn’t want to own a great company.
The problem with all this, is a shortage of shares. As long as debt is cheap and cash flow heavy companies buy back shares, supply will decrease. Over do it and it won’t end well.
Bond Sell Off
I ran across a recent Goldman Sachs report that Valuwalk kindly posted for everyone to read. It takes an in-depth look at the Fed ending QE, the big sell off in bonds this month, and how the Goldman economists expect the market will react. It also confirms my investments for rising interest rates. Their view seems to be positive. Though bond owners may disagree. Just look at what the iShares 20 yr Treasury Bond Fund (TLT) did in May.
I don’t know if this is the start to a bigger bond sell off or just investor reaction to Ben Bernacke’s comments earlier this week. Either way, it’s not worth owning long-term bonds and finding out.
- If You Only Know 5 Things About Investing, Make It These – 5 points worth memorizing.
- What Do You Control? – great reminder, do this and know your limitations.
- Stop With the “Money Printing” Madness – great explanation on what really happens with so-called “money printing”.
- The Greatest Investment Book Ever Written – not what you’d expect and offers a great rundown of the key points.