There was a TechCrunch article 2 years ago that lays out a convincing argument that something/someone started siphoning value out of the US financial markets--thus driving up prices for everything--sometime in the last 50 years. It asks "Why so costly in the US?" but doesn't have any definite answers. Link here: https://techcrunch.com/2017/07/09/why-so-costly/
I think TA offers some really good answers, all centering around market deregulation beginning under Reagan in the early 1980s. Suddenly, corporations had a lot more tools at their disposal to siphon off their value towards shareholders and manipulate the market in the process.
... Which leaves me wondering, how long can the current bull market last in the US if it's draining US corporations of their value?
Re: "why so costly", the answer as to what phenomenon affects the US and UK but not other western countries. It pretty much has to be neoliberal/Reagan/Thatcherism; in particular, the suppression of wage growth through anti-union measures and excessive privatisation.
Arguments around "drained value" would have to say where the value is being to; real estate?
The instantaneous impact on the share price is just one aspect. The more worrying effects are the priority claim that debt holds over equity, and the future dynamics of cashflow v. interest rates.
Bond interest payments are fixed and mandatory.
Dividends are variable and discretionary.
If recession hits and cashflow falls, it becomes more difficult to pay the interest coupon on the bonds. Or if rates rise, it becomes more expensive to roll-over the debt at maturity. Hint - rates have been rising at a time when 2019 revenue forecasts are falling.
The size of the problem is shown by the proportion of Investment Grade corporate debt that is BBB-rated, just above junk. In a recession, those companies may see reduced cashflow, and hence have their credit rating reduced one notch to junk. Then many regulated investors (e.g. pension funds) may have to sell the bonds, which reduces their price and increases their interest rate, making it yet more expensive for the companies to rollover debt, or increase debt to survive the recession. Hence a negative feedback loop leads to a deeper recession.
Here's good explanation, with a chart showing the ballooning of BBB-rated debt (note the axis is trillions, with a 't'):
I did not find this argument particularly compelling. His analysis of why stock buybacks are worse than paying dividends seems to miss the fact that the buyback has an impact on the share price, so more than just the people who had their stock bought back directly by the company will ultimately pay capital gains tax on because of the buyback. If you account for this, the disparity disappears.
I think TA offers some really good answers, all centering around market deregulation beginning under Reagan in the early 1980s. Suddenly, corporations had a lot more tools at their disposal to siphon off their value towards shareholders and manipulate the market in the process.
... Which leaves me wondering, how long can the current bull market last in the US if it's draining US corporations of their value?