Commentator and former Labor Secretary Robert Reich was talking about why stocks keep going up in the face of lackluster economic growth. His argument is basic supply and demand: investors are putting money to work in a shrinking pool of publicly traded stocks.
According to Reich, corporate stock buybacks and leveraged buyouts are taking huge quantities of stock out of public circulation: 8 percent of all publicly available shares over the past two years. I hadn’t heard that 8 percent figure. That’s impressive. IPO activity is strong, but it is not making up for this vanishing supply.
Reich argues that, eventually, this boom will collapse: after all, the reason private equity firms buy up companies is to float them again at a later date … and a higher price.
(Reich’s argument is not airtight, of course. You could argue that Sarbanes-Oxley and related regulations have raised the cost of doing business as a public company, leading to a discount to public prices … and an incentive to take and keep companies private. But in the end, I think he has a point.)