Tags: Santschi | bonds | stock | supply

TrimTabs' Santschi: Fed's Easing Trims Stock Supply

Wednesday, 22 May 2013 08:02 AM

By Dan Weil

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The Federal Reserve's massive easing program is restricting the supply of stocks while also boosting demand for them, says David Santschi, CEO of TrimTabs Investment Research.

"We do not think investors fully grasp the degree to which the Fed's easy money policies are helping limit the supply of shares and boost the demand for shares," he wrote in a commentary obtained by CNBC.

Low interest rates are encouraging companies to buy back their own shares and to issue bonds rather than stocks, Santschi said.

Video:
Economist Predicts 'Unthinkable' for 2013

He isn't too happy with the central bank's actions. "We think the Fed's policies are misguided. ... They are blowing up asset bubbles in stocks, bonds farmland, and real estate," he said.

Alan Cappers, managing director at Lloyds TSB Corporate Markets, agrees with Santschi that the falling stock supply is helping to boost the market, and he thinks the same thing is happening with bonds.

"We are in an environment of low growth — interest rates are very low. Why wouldn't corporates take advantage of these low rates and tight spreads to borrow at the moment? That is in many ways the objective of the current policy framework," he told CNBC.

"Because sovereigns are issuing less debt, the fixed income market [is shrinking] as well. So when it looks like you see corporate debt rallying, when it looks like you see equity rallying, it's actually scarcity of assets out there," Capper noted

When it comes to the Fed, Steve Forbes, chairman of Forbes Media is every bit as critical of the central bank as Santschi.

"In the case of [Fed Chairman Ben] Bernanke, I was in Britain a few months ago, and they reminded me that QE stands for Queen Elizabeth, and somebody suggested that instead of calling it QE [quantitative easing], call it Titanic," Forbes told Newsmax TV in an exclusive interview.

Video: Economist Predicts 'Unthinkable' for 2013

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