Why are stocks going up?

Type_45

25_Years_On said:

When my national savings three year bond matures in a couple of weeks time should I go for a 0.5% instant access, a three year bond paying 1% or should I put it into my Vanguard VLS60 which even in this last year is up over 7%. I don't need the £9000 soon so it seems like a sensible choice. Same with many people who might see stocks as a riskier option but it's far better than getting little return elsewhere. Perhaps one day there will a crash which sticks but the long term risks seem fairly low.  Very low interest rates seem to be a big spur to people choosing stocks instead and so the money piles in and helps the markets rise.

As long as your investment is diversified (eg VLS) then no crash will ever stick. The world's economy will keep growing like it always does. But there will always be regular crashes along the way. 

I'm tolerant to risk. Others are not. Some people think putting money in a bank is risky. I don't even think bitcoin is a risk. Each to their own.

If you need that money any time soon, don't risk it at all. If you can live without it for 5+ years, then you need to be getting more than 2% interest just to tread water and stave off inflation. 1% interest is losing money, not making money.

Type_45

masonic said:

Type_45 said:

Gary1984 said:

Governments and central banks have been pumping Trillions into economies all over the world to keep things afloat. So there's a lot of money sloshing around and a lot of it finds itself being funnelled into the stockmarket. 

Exactly. QE goes straight (via banks) into the stock market.

Wouldn't that be straight into bond markets, and indirectly into stock markets as a result of the impact on bond prices?

According to a YouTube video I watched, QE ends up being passed down to banks and invested directly in stocks.

The video I watched on YouTube is called something like "QE is the biggest sham on earth" and the guy explains exactly how it works.

thegentleway

Type_45 said:

masonic said:

Type_45 said:

Gary1984 said:

Governments and central banks have been pumping Trillions into economies all over the world to keep things afloat. So there's a lot of money sloshing around and a lot of it finds itself being funnelled into the stockmarket. 

Exactly. QE goes straight (via banks) into the stock market.

Wouldn't that be straight into bond markets, and indirectly into stock markets as a result of the impact on bond prices?

According to a YouTube video I watched, QE ends up being passed down to banks and invested directly in stocks.

The video I watched on YouTube is called something like "QE is the biggest sham on earth" and the guy explains exactly how it works.

Does he also explain how flat the earth is and how vaccines are for mind control?

masonic

Type_45 said:

masonic said:

Type_45 said:

Gary1984 said:

Governments and central banks have been pumping Trillions into economies all over the world to keep things afloat. So there's a lot of money sloshing around and a lot of it finds itself being funnelled into the stockmarket. 

Exactly. QE goes straight (via banks) into the stock market.

Wouldn't that be straight into bond markets, and indirectly into stock markets as a result of the impact on bond prices?

According to a YouTube video I watched, QE ends up being passed down to banks and invested directly in stocks.

The video I watched on YouTube is called something like "QE is the biggest sham on earth" and the guy explains exactly how it works.

I'm not into conspiracy theories spread through social media. Reputable sources suggest QE involves the purchasing of long duration government bonds, and sometimes mortgage backed securities, from banks. It is not in the interest of those banks to buy back bonds at a higher price and lower yield, so they use the money they receive to make loans to businesses. The loans allow those businesses to invest in generating more revenue, which is anticipated by the market and results in higher share prices. Most banks in the habit of holding large quantities of government bonds are unlikely to wish to hold equities in their place, as that would be a substantial jump in risk.

Type_45

masonic said:

Type_45 said:

masonic said:

Type_45 said:

Gary1984 said:

Governments and central banks have been pumping Trillions into economies all over the world to keep things afloat. So there's a lot of money sloshing around and a lot of it finds itself being funnelled into the stockmarket. 

Exactly. QE goes straight (via banks) into the stock market.

Wouldn't that be straight into bond markets, and indirectly into stock markets as a result of the impact on bond prices?

According to a YouTube video I watched, QE ends up being passed down to banks and invested directly in stocks.

The video I watched on YouTube is called something like "QE is the biggest sham on earth" and the guy explains exactly how it works.

I'm not into conspiracy theories spread through social media. Reputable sources suggest QE involves the purchasing of long duration government bonds, and sometimes mortgage backed securities, from banks. It is not in the interest of those banks to buy back bonds at a higher price and lower yield, so they use the money they receive to make loans to businesses. The loans allow those businesses to invest in generating more revenue, which is anticipated by the market and results in higher share prices. Most banks in the habit of holding large quantities of government bonds are unlikely to wish to hold equities in their place, as that would be a substantial jump in risk.

You're almost correct. The QE is used to buy the bonds from the banks, and the funds the banks receive is then invested in stocks.

This is why the stock market almost immediately rises after QE.

masonic

Type_45 said:

masonic said:

Type_45 said:

masonic said:

Type_45 said:

Gary1984 said:

Governments and central banks have been pumping Trillions into economies all over the world to keep things afloat. So there's a lot of money sloshing around and a lot of it finds itself being funnelled into the stockmarket. 

Exactly. QE goes straight (via banks) into the stock market.

Wouldn't that be straight into bond markets, and indirectly into stock markets as a result of the impact on bond prices?

According to a YouTube video I watched, QE ends up being passed down to banks and invested directly in stocks.

The video I watched on YouTube is called something like "QE is the biggest sham on earth" and the guy explains exactly how it works.

I'm not into conspiracy theories spread through social media. Reputable sources suggest QE involves the purchasing of long duration government bonds, and sometimes mortgage backed securities, from banks. It is not in the interest of those banks to buy back bonds at a higher price and lower yield, so they use the money they receive to make loans to businesses. The loans allow those businesses to invest in generating more revenue, which is anticipated by the market and results in higher share prices. Most banks in the habit of holding large quantities of government bonds are unlikely to wish to hold equities in their place, as that would be a substantial jump in risk.

You're almost correct. The QE is used to buy the bonds from the banks, and the funds the banks receive is then invested in stocks.

This is why the stock market almost immediately rises after QE.

As I mentioned, most banks in the habit of holding large quantities of government bonds are unlikely to wish to hold equities in their place, as that would be a substantial jump in risk. Reputable sources suggest the money banks receive are used to make loans to businesses. The loans allow those businesses to invest in generating more revenue, which is anticipated by the market and that is the reason for the almost immediate rises, which generally follow the announcement of QE, and precede the actual execution of the policy.

The explanation I provided is just a paraphrasing of several reputable websites. However, if you have a reliable source or data showing that it is in fact mostly equities that are purchased by the banks to replace the bonds they have sold to the government, that would be interesting to read.

Type_45

masonic said:

Type_45 said:

masonic said:

Type_45 said:

masonic said:

Type_45 said:

Gary1984 said:

Governments and central banks have been pumping Trillions into economies all over the world to keep things afloat. So there's a lot of money sloshing around and a lot of it finds itself being funnelled into the stockmarket. 

Exactly. QE goes straight (via banks) into the stock market.

Wouldn't that be straight into bond markets, and indirectly into stock markets as a result of the impact on bond prices?

According to a YouTube video I watched, QE ends up being passed down to banks and invested directly in stocks.

The video I watched on YouTube is called something like "QE is the biggest sham on earth" and the guy explains exactly how it works.

I'm not into conspiracy theories spread through social media. Reputable sources suggest QE involves the purchasing of long duration government bonds, and sometimes mortgage backed securities, from banks. It is not in the interest of those banks to buy back bonds at a higher price and lower yield, so they use the money they receive to make loans to businesses. The loans allow those businesses to invest in generating more revenue, which is anticipated by the market and results in higher share prices. Most banks in the habit of holding large quantities of government bonds are unlikely to wish to hold equities in their place, as that would be a substantial jump in risk.

You're almost correct. The QE is used to buy the bonds from the banks, and the funds the banks receive is then invested in stocks.

This is why the stock market almost immediately rises after QE.

As I mentioned, most banks in the habit of holding large quantities of government bonds are unlikely to wish to hold equities in their place, as that would be a substantial jump in risk. Reputable sources suggest the money banks receive are used to make loans to businesses. The loans allow those businesses to invest in generating more revenue, which is anticipated by the market and that is the reason for the almost immediate rises, which generally follow the announcement of QE, and precede the actual execution of the policy.

The explanation I provided is just a paraphrasing of several reputable websites. However, if you have a reliable source or data showing that it is in fact mostly equities that are purchased by the banks to replace the bonds they have sold to the government, that would be interesting to read.

How much QE has there been? A quick Google didn't give me a figure. But it's almost £1tn now, isn't it?

You reckon that £1tn has gone to British businesses? 

Is that more plausible than it being used to simply buy stock?

Linton

Type_45 said:

Gary1984 said:

Governments and central banks have been pumping Trillions into economies all over the world to keep things afloat. So there's a lot of money sloshing around and a lot of it finds itself being funnelled into the stockmarket. 

Exactly. QE goes straight (via banks) into the stock market. 

How does QE money go straight into the stock market?  A lot of QE money surely simply gets returned to the BoE as increased reserves. What is the mechanism for what you suggest?  Do you have evidence that banks themselves are buying large numbers of shares?

Similarly with Covid money.  Most of the expenditure on subsidising wages is simply replacing money that is no longer circulating.  In general those people reliant on earnings are not benefitting from the large government expenditure in having a lot more spare cash with which to buy shares, if anything the reverse.  Who is buying and how are they getting the cash?

masonic

Type_45 said:

masonic said:

Type_45 said:

masonic said:

Type_45 said:

masonic said:

Type_45 said:

Gary1984 said:

Governments and central banks have been pumping Trillions into economies all over the world to keep things afloat. So there's a lot of money sloshing around and a lot of it finds itself being funnelled into the stockmarket. 

Exactly. QE goes straight (via banks) into the stock market.

Wouldn't that be straight into bond markets, and indirectly into stock markets as a result of the impact on bond prices?

According to a YouTube video I watched, QE ends up being passed down to banks and invested directly in stocks.

The video I watched on YouTube is called something like "QE is the biggest sham on earth" and the guy explains exactly how it works.

I'm not into conspiracy theories spread through social media. Reputable sources suggest QE involves the purchasing of long duration government bonds, and sometimes mortgage backed securities, from banks. It is not in the interest of those banks to buy back bonds at a higher price and lower yield, so they use the money they receive to make loans to businesses. The loans allow those businesses to invest in generating more revenue, which is anticipated by the market and results in higher share prices. Most banks in the habit of holding large quantities of government bonds are unlikely to wish to hold equities in their place, as that would be a substantial jump in risk.

You're almost correct. The QE is used to buy the bonds from the banks, and the funds the banks receive is then invested in stocks.

This is why the stock market almost immediately rises after QE.

As I mentioned, most banks in the habit of holding large quantities of government bonds are unlikely to wish to hold equities in their place, as that would be a substantial jump in risk. Reputable sources suggest the money banks receive are used to make loans to businesses. The loans allow those businesses to invest in generating more revenue, which is anticipated by the market and that is the reason for the almost immediate rises, which generally follow the announcement of QE, and precede the actual execution of the policy.

The explanation I provided is just a paraphrasing of several reputable websites. However, if you have a reliable source or data showing that it is in fact mostly equities that are purchased by the banks to replace the bonds they have sold to the government, that would be interesting to read.

How much QE has there been? A quick Google didn't give me a figure. But it's almost £1tn now, isn't it?

You reckon that £1tn has gone to British businesses? 

Is that more plausible than it being used to simply buy stock?

According to the BoE, QE is up to nearly £900bn, so yes about a trillion. I'm not suggesting all of that money has gone into business loans. Loans to businesses are just one part of a bank's lending operations, business loans were mentioned specifically as they are relevant to share price inflation. If you look at the total debt-securities of financial services companies in the UK, this has increased from £2tn in 2007 to £3.4tn in 2016 (source Statista). This looks consistent with the majority of QE proceeds being lent.

Thrugelmir

Type_45 said:

Gary1984 said:

Governments and central banks have been pumping Trillions into economies all over the world to keep things afloat. So there's a lot of money sloshing around and a lot of it finds itself being funnelled into the stockmarket. 

Exactly. QE goes straight (via banks) into the stock market. 

The purpose of stock markets is for companies to raise capital to grow their business. Which stocks investors choose to invest their money is a personal choice.