Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

Gold Seeker Closing Report: Gold and Silver Close Mixed with Stocks
By: Chris Mullen, Gold Seeker Report

The Powers-That-Be Were Everywhere Yesterday
By: Ed Steer

Gold and Silver Price Goals For Year End
By: Craig Hemke

GoldSeek Radio Nugget: Peter Schiff and Chris Waltzek
By: radio.GoldSeek.com

Gold and Global Financial Crisis Redux
By: Jim Willie CB

The Trade War Is Not The Problem With The Global Economy
By: Dave Kranzler

Gold Stock Bulls Gore The Bears
By: Stewart Thomson

Where are we now in the investor cycle?
By: Michael J. Kosares

The Amazing Story of Gold to Gold Stocks Ratios
By: Rambus

A Bad Moon Rising Ė Over Several Markets
By: Gary Christenson

 
Search

GoldSeek Web

 
Why the Fed canít raise interest rates part 2


 -- Published: Thursday, 19 March 2015 | Print  | Disqus 

By John Manfreda

In part 1, I wrote about why the Fed canít raise interest rates without the US economy going back into a recession. For part 2, I am going to explain why the Fed canít raise interest rates without crashing the stock market.

The biggest misconception about the stock market is that itís not overvalued. This assumption is based on the average Price to Earnings ratio (PE ratio) of the companies in the S&P500. To justify this assumption, they compare its PE ratios, to the ones in 1999.

Currently, the S&P500 PE ratio is trading at a rate of 19 times earnings. In 1999, the average PE ratio of the S&P500 was trading at a rate of 32 times earnings. The average PE ratio generally trades at a rate of 20-25 times earnings. This fact is why pundits claim that we are not in a stock market bubble, like we were in the year 2000.

What they fail to take into account is todayís modern day interest rate policy. Today the Fed Funds rate is almost at zero, where as in 1999-2000, it was between 5-6 percent.

This artificially low interest rate has enabled companies to borrow money at almost no interest, thus enabling them to repurchase their own stock. Since 2009, companies in the S&P500 have spent over $2 trillion dollars on repurchasing their own stock.

This is why the S&P500 has more than tripled in value since 2009.

This form of borrowing has increased corporate debt by $2.6 trillion dollars. In 2008, corporate debt totaled to the amount of $11 trillion dollars. Now, total corporate debt stands at $13.6 trillion dollars.

If interest rates were to rise, corporations would no longer be able to accumulate debt so easily. And as a result, they would no longer be able to buy back their own shares. Combine this with the fact that revenue is projected to decline in 2015, and corporate cash holdings only amount to $1.98 trillion dollars, companies would have to raise cash in order to pay off their debts.

The only ways they would be able to acquire more cash is by selling company assets or issuing new shares. Considering the fact that almost 95% of corporate earnings since 2009 have been spent on buybacks and dividends; selling off assets is unrealistic. That means the only way to raise money would be to issue new shares.

Part 3 will be about the Bond Market.


| Digg This Article
 -- Published: Thursday, 19 March 2015 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2019



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer


Map

The views contained here may not represent the views of GoldSeek.com, Gold Seek LLC, its affiliates or advertisers. GoldSeek.com, Gold Seek LLC makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, Gold Seek LLC, is strictly prohibited. In no event shall GoldSeek.com, Gold Seek LLC or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.