You do not have to be a prognosticator of doom to understand the statistical phenomenon of reversion to the mean. Look at this chart from the Federal Reserve:
Twice before both recent recessions, household wealth has substantially outgrown GDP. Compare that performance to the end of the chart where the mountain of out sized asset inflation stands. Households have used debt leverage to exceed the growth of the economy in general, but how long can it go on before it collapses, again? Ultra-low interest rates have become economically addictive. When the Fed tried to reverse this trend in the fourth quarter, it had to reverse course and leave interest rates alone when the stock market began to implode. Remember the
800 drop on one December day? Even the King of Debt had to protest restricting easy money.
Some observers think the stock market is being held in the stratosphere by one major source of demand: corporate buybacks of their stock. Here is one chart:
Notice that the pattern was repeated just before the financial crisis of 2007-09. CNN said in July that buybacks "where the only thing keeping the market afloat". In 2018 buybacks of all stocks hit $1.1 trillion, a record. S&P companies spent $4 trillion on their stock purchases between 2003 and 2017; that is about 53% of their profits over the same period. (Thirty percent went to dividends. Who owns company stock, why CEOs of course!) It was extremely revealing of the mindset of corporate America when a panel of pharmaceutical CEOs was asked during a congressional hearing on soaring drug prices, whether their companies had spent any of their enormous tax subsidies on reducing drug prices. To a man (and one woman) they said, "No." No, because they have spent corporate profits on stock purchases, dividends, and advertising.
