Dumb - And Dumber - Money Keeps Pouring In

Tyler Durden's picture

Authored by John Rubino via DollarCollapse.com,

Someday, stock, bond and real estate valuations will matter again.

And the mechanism by which this return to sanity is achieved will probably be the torrent of money now flowing in from people who, for various reasons, don’t care about (or understand) the prices they’re paying.

Millennials, for instance, seem to have reached the “beginners’ mistakes” phase of their financial lives. They’re major buyers of recreational vehicles – see The Perfect Crash Indicator Is Flashing Red — and are now opening stock brokerage accounts at a startling pace:

Schwab: “New Accounts Are At Levels We Have Not Seen Since The Dot Com Bubble” As Millennials Rush Into Stocks

(Zero Hedge) – In its Q2 earnings results, [stock broker Charles] Schwab reported that after years of avoiding equities, Schwab clients opened the highest number of brokerage accounts in the first half of 2017 since 2000. This is what Schwab said on its Q2 conference call:


New accounts are at levels we have not seen since the Internet boom of the late 1990s, up 34% over the first half of last year. But maybe more important for the long-term growth of the organization is not so much new accounts, but new-to-firm households, and our new-to-firm retail households were up 50% over that same period from 2016.

In total, Schwab clients opened over 350,000 new brokerage accounts during the quarter, with the year-to-date total reaching 719,000, marking the biggest first-half increase in 17 years. Total client assets rose 16% to $3.04 trillion.


Schwab also adds that the net cash level among its clients has only been lower once since the depths of the financial crisis in Q1 2009:


“Now, it’s clear that clients are highly engaged in the markets, we have cash being aggressively invested into the equity market, as the market has climbed. By the end of the second quarter, cash levels for our clients had fallen to about 11.5% of assets overall, now, that’s a level that we’ve only seen one time since the market began its recovery in the spring of 2009.”


But wait, there’s more: throwing in the towel on prudence, according to a quarterly investment survey from E*Trade, nearly a third of millennial investors are planning to move out of cash and into new positions over the coming six months. By comparison, only 19% of Generation X investors (aged 35-54) are planning such a change to their portfolio, while 9% of investors above the age of 55 are planning to buy in.


Furthermore, according to a June survey from Legg Mason, nearly 80% of millennial investors plan to take on more risk this year, with 66% of them expressing an interest in equities. About 45% plan to take on “much more risk” in their portfolios.

In other words, little by little, everyone is going “all in.”

Here’s a related chart showing margin debt – many investors borrow against existing stock portfolios to buy more shares. Not surprisingly given the above, it’s at record levels and rising.

Corporations, meanwhile, continue to hoover up their own shares even as the market averages break records:

Big Pharma Spends on Share Buybacks, but R&D? Not So Much

(New York Times) – Under fire for skyrocketing drug prices, pharmaceutical companies often offer this response: The high costs of their products are justified because the proceeds generate money for crucial research on new cures and treatments.


It’s a compelling argument, but only partly true. As a revealing new academic study shows, big pharmaceutical companies have spent more on share buybacks and dividends in a recent 10-year period than they did on research and development. The working paper, published on Thursday by the Institute for New Economic Thinking, is entitled “U.S. Pharma’s Financialized Business Model.”


The paper’s five authors concluded that from 2006 through 2015, the 18 drug companies in the Standard & Poor’s 500 index spent a combined $516 billion on buybacks and dividends. This exceeded by 11 percent the companies’ research and development spending of $465 billion during these years.


The authors contend that many big pharmaceutical companies are living off patents that are decades-old and have little to show in the way of new blockbuster drugs. But their share buybacks and dividend payments inoculate them against shareholders who might be concerned about lackluster research and development.


While stock buybacks appear to be particularly troublesome among drugmakers, big companies in other industries — in sectors like banking, retail, technology and consumer goods, among others — are also buying back boatloads of their shares. Through May, some $390 billion in buybacks have been announced this year, $13 billion more than at this time in 2016, according to figures compiled by Jeffrey Yale Rubin at Birinyi Associates, a stock market research firm.


June 28 was the biggest single buyback announcement day in history. That was when 26 banks disclosed buybacks worth $92.8 billion, largely a response to having just passed the stress tests administered by the Federal Reserve Board. That figure blew past the previous record of $56.4 billion announced on July 20, 2006.

Note that last sentence: The previous record for corporate share repurchases occurred about a year before stock prices fell off a cliff.

But the dumbest money is not in the private sector.

It’s sitting around central bank conference tables making clueless bets on equities with taxpayer (i.e., make-believe) money. The Bank of Japan is leading the way:

(Japan News) – At its Policy Board meeting on July 28-29, 2016, the BOJ decided to increase its purchases of ETFs, which hold stocks and other assets, at an annual pace of ¥6 trillion from ¥3.3 trillion.


Since then, the benchmark 225-issue Nikkei stock average on the Tokyo Stock Exchange has risen some 20 percent.


The BOJ program “has created a sense of security among investors,” Nobuyuki Hirano, chairman of the Japanese Bankers Association (Zenginkyo), and president of Mitsubishi UFJ Financial Group Inc., one of Japan’s three megabank groups, said at a press conference earlier this month.

Last month, BoJ Governor Haruhiko Kuroda told reporters that it is “‘possible in theory’ to reduce the BOJ’s ETF purchases before inflation reaches the target. But it was ‘generally unthinkable’ that the BOJ would remove a part of its easing program, and had no intention of treating ETF purchases differently from the other elements of the program.”

It bears repeating that this is all happening with most major equity indexes at or near record levels – that is, levels that have in the past preceded huge crashes. Which is how these guys came to be known as dumb money.

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Money Mantra's picture

These morons on so much margin will get crucified.  When the top comes it will come hard.  The calls from Shepwave have been good. Definitely kep be on right side of market instead of being short too early like a lot of fools here. Thanks ZH.  

Arnold's picture




Ghost of PartysOver's picture

I think this is called desperation.  Desperation to get out from under students loans a fast as possible.  Buying an RV to live in instead of paying rent or mortgage.  Playing with margin which is a really bad idea for someone with no experience.   My mom used to always say when you find yourself in a hole the first thing to do is stop digging.

TrumpXVI's picture

It takes deeper pockets to maintain an RV than a house!

Arnold's picture

Only if it moves.
Cinder blocks and Visqueen are cheap.

Delta New J's picture

These fools here as you say are not traders or investors. Most of them are in their basements at hostels and have an android used.  Watch for the Shepwave turn date to bring in a big move in stocks.  

techpriest's picture

If Shepwave is so great, surely they can afford to pay for legitimate advertising?

Chippewa Partners's picture

When the top comes?     That's funny.

Money Mantra's picture

You called the top in the Dow at 12,000 I remember.  You cant fool us. We have your number. lol Still guessing the markets I see.  LOL

Arnold's picture

That prolly was the top.
The Boiler (room) isn't dry enough to blow yet.

The Real Tony's picture

The big question is what will be the low for the DOW, will 5,000 hold or will the DOW test the 3,000 level?

Yen Cross's picture

 Personally Tyler, I think they're completely unaware.

  Most of the retards I meet, live their lives on auto-pilot.

BandGap's picture

Don't insult retards.

There is a small measure of comfort in "the more things change, the more they stay the same".  This is an essential when shearing sheep or culling the herd.

Yen Cross's picture

You've got a point there.

RagaMuffin's picture

How many of  the folks who call for a financial collapse actually make money from said collapse?    ;-)

Delta New J's picture

It is all for hits. That is what sells doom and gloom makes money.

Lewshine's picture

Does anyone here remember when short selling was considered a viable option in trading stocks?  ...Regardless of company or economic conditions, that trade is long gone!

GunnerySgtHartman's picture

Speculators never die!

Arnold's picture

Malas Yerbas nunca muere.

Press 1 for English.....

sunshine_units's picture

Don't you mean...."Press 2 for English"?

silverer's picture

I just know I'll end up selling my house to the Chinese. They'll be the only ones with money soon.

The Real Tony's picture

The Chinese are born with an extra gene the DNA house on the brain syndrome extra gene.

jamesmmu's picture
Continue to Beware the Job Numbers (Is it the Bureau of Labor Statistics or Bureau of Lying Statistics?)


The Real Tony's picture

I even made the comment right here on Zero Hedge a while back if the U.S. dollar falls far enough all they have to do is lie about the monthly jobs figures.

MuffDiver69's picture

People can do whatever they want. Who cares...Would you prefer they go to a casino...Get over yourself..

androkles's picture

Buying RV's and THO, sure that can go on 4evah



Hikikomori's picture

Wah!  Wah!  Wah!  I lost money in the market - so everyone who's made money has to be an idiot!

66Mustanggirl's picture

I would like someone to answer one very simple question; how can anything that is based and founded on a currency that has done nothing but lose value and purchasing power for decades be considered a vehicle for amassing wealth for the average person??

Case in point:
On Jan. 3rd, 1987 the Dow broke 2000.
30 YEARS and 8 months later we sit at 22,000
Of course, during that same time period, the dollar lost 143% of its purchasing power.....which amazingly no one bothers to talk about.....so YOU do the math.

On March 29th, 1999, the Dow broke 10,000. It pretty much stagnated for the next 6-7 years while inflation ate away at the minuscule profits then rose dramatically to 14,000 until March 6, 2009 when "investors" awoke to find themselves looking at 6,443.97. Of course, during that period of time, inflation ate away 43% of the dollar's purchasing power, which....again....no one bothers to mention. GULP!

Now, here we sit 8 years later at 22,000!! WOO-HOO!!!!!!! Of course, as the market has clawed its way back from its LAST devastating crash, the dollar lost ANOTHER 18% of its purchasing power and if history is any lesson, it will all come crashing down, as it ALWAYS does, suckers will gamely BTFD, then it will climb a little, then stay flat for years.....while inflation erodes the value of the dollars invested in it.....then.....FINALLY....the casino will start ding-dinging once again and the whole crazy-a$$ dog and pony show will start ratcheting up.....again.

Seriously.....SOMEONE explain to me how THIS is a plan??

Arnold's picture

Well, my model says... I need more Legos.

yogy999's picture

You absolutely nailed it here. Best post Ive seen in a long time.

66Mustanggirl's picture

We all know who is making out like bandits in this mother-of-all Ponzi schemes and it ain't Mom and Pop Mainstreet!  And now they are suckering in Millenials who are already drowning in enough personal and national debt for 10 lifetimes???  After Karma gets done with the cesspool known as D.C. I'm pretty sure I know where her sites will be set next.

The Real Tony's picture

I think the market will crash about 80 percent and then stay flat for about fifty years.

RabbitChow's picture

So we have dumb and dumber money pouring into the stock market (when most know it is really bank and institution money pouring in, not individuals) and at the same time we are told that dumb and dumber money is being poured into the crypto markets.  

I think the dumb and dumber can go with the 'controlled' and 'regulated' markets.  I'll take my chances with the cryptos.  Most of the action is NOT from the US and cannot be regulated either by the old banking system or by the US or Europe.  I will take my chances with the billions of people in India, Asia, Russia and so on.  I think they see the old system crumbling and have gotten out.  Those in the US are going to be left way behind when it all starts to catch early next year.  

user_name's picture

(i.e., make-believe) money


You mean like bitcoin?  There's an idea...the Fed should start mining bitcoin.  That helps everybody.  The assholes who think bitcoin is real can see their bitcoin increase in value and the Fed won't have to continue to devalue what little integrity our dollar still has.  Problem solved

Muppet's picture

Always the when

idontcare's picture

I thought The Purge (ala Fringe, not ref the movies of the same name) had already begun.  Guess we'll know for sure by 2020.

Slowdrip's picture

A full blown city is humming along nicely 6 MILES BELOW the Denver International Airport. A nice country club underground escape for the elite and the few chosen, when the Planet X System arrives....

idontcare's picture

No planet X, but if the economic SHTF, all those in the military/governmental/other bunkers in that part of the country will be doing better than the population at large, especially those residing along the coasts.