What's the Big Idea? This Is What Could Stop Stocks From Shrinking

The video discusses the trend of the shrinking US stock market, driven by share buybacks and M&A, often financed through debt. The cost of equity is higher than debt, making debt a more attractive option for companies. This financial engineering boosts earnings per share in low-growth environments. However, political pushback and potential bond investor actions could challenge this trend. The dwindling supply of equities has increased demand, but political factors may alter this dynamic.

What is one of the main reasons for the shrinking US stock market since 2018?

• Increased public investment

• Share buybacks and M&A

• Higher interest rates

• Government regulations

Why might companies prefer financial engineering over organic growth?

• It requires less capital

• It is more sustainable

• It can boost earnings per share in a low growth environment

• It is less risky

What is the current estimated cost of equity in the US according to the analysis?

• 6.7%

• 5.5%

• 4.1%

• 7.2%

What could potentially stop the trend of shrinking stock markets?

• Higher corporate taxes

• More mergers and acquisitions

• Increased share buybacks

• A sudden strike by bond investors

What is considered the biggest threat to the de-equitization trend?

• Economic recession

• Technological advancements

• Rising inflation

• Political pushback on share buybacks