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Bloomberg News • November 2, 2022

Is the Stock Market being Artificially Manipulated

Being on Wall Street means being in The Old Boy's Club.

I have always wondered what it might be like to be an insider at Wall Street, to be able to know secrets before others, to have a head start in trends and events. I am not talking about “insider” information. I am speaking about the “old boys” club. A recent article in Bloomberg Business provided insight into the stock market and why many big companies are profiting. At the same time, so much money from smaller investors is fleeing.


This is possibly the scariest thing I have ever read about the securities industry. But, if this is true, and I believe it to be, then it sets up our annuity industry for a long time.


Here is the shocker: the single biggest reason the stock market has been artificially supported is because of corporate stock buybacks.


Why wouldn’t a company buy back its stock when interest rates are low? Almost any company in a growth cycle could issue bonds at low interest and use the money to repurchase their stock. Does it get any simpler?


Here is the question of the day. What happens when this artificial support weakens or stops altogether? Then, a giant BEAR market is what we will have. The enclosed article from the most respected source I use (Bloomberg) says just that. If we enter a Bear cycle and stay there, Fixed Indexed Annuities (FIA) will be the darling of the financial world.


Here are two power statements from the Bloomberg article:


  • Standard & Poor’s 500 Index constituents are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007.
  • The buying contrasts with rampant selling by clients of mutual and exchange-traded funds, who, after pulling $183 billion in 2019. Money market funds now hold over $3 Trillion in cash. Three-quarters of the withdrawals are from smaller retail customers.


Here are the article and the link; if you read it carefully, you will see that approximately $590 billion is entering the market in 2016 strictly from large companies buying back their own stock. At the same time, it is estimated that $200 billion from small investors will be exiting in 2020.


Only One Buyer is Keeping S&P 500’s Bull Market Alive

Bloomberg News

http://www.bloomberg.com/news/articles/2016-03-14/there-s-only-one-buyer-keeping-the-s-p-500-s-bull-market-alive

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Should I Capitalize Interest or No

By VIP Marketing Enterprise • July 24, 2022
Most traditional Premium Finance programs require the client to pay full interest on the loan whereas many (but not all) of NIW’s designs capitalize on the interest. Why does NIW use a different approach? Could it be that the prevailing approach is wrong? Capitalizing interest ultimately means rolling the interest into the loan, which has advantages and disadvantages to overpaying for the interest out-of-pocket. When designed correctly, NIW finds that most of the time clients prefer the interest on financed insurance cases to be capitalized. However, the right conditions must be met because there are multiple situations when this is not possible or recommended. Paying the interest into the trust has historically been the norm for premium finance cases. However, this method comes with the price of gift taxes, opportunity costs, and fees associated with liquidating assets. The problem of paying interest out-of-pocket is circular. Many programs rely on the cash accumulation of the life insurance policy to pay off the loan, and in order to get surplus cash accumulation the design must be over-funded. The result of over-funding is that the borrower (typically a trust) needs to continue borrowing larger sums of money to achieve the optimum level of funding. Over-funding results in a very large loan, and consequently more interest. As a result, the client ends up paying as much (or more) in interest as purchasing a conventional life insurance product. Clearly, paying interest payments out of pocket defeats one of the primary reasons clients use financing in the first place. On the other hand, if you don’t over-fund the policy you can’t create the surplus cash value to pay off the loan. Damned if you do; damned if you don’t. The chart below shows a typical 7 pay funding pattern where the client is financing and paying full interest out of pocket. This is compared to the premium payments the client would have been making if they had purchased insurance out of pocket. The following chart compares annual payments for a $10m Policy GUL vs. interest payments on a 7 Pay PF IUL 45- year-old Male Standard Non-Smoker. The loan was priced at the current forward 30 day LIBOR curve +1.75%.
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