Every time I see one of these announcements, the valuations go up and up and up and up. I remember not long ago being wowed by a 1B acquisition. That was called a unicorn because of how incredible it was. And now we're at 29B. Is this just because money is all a joke?
It is fantastic to see it play out, such as valuations much larger than before, as well as the unexpected areas of speculation and shifts in market tolerances for worse deals.
But we aren't even done yet! And this comes with a pretty clear agreement on the limitations of monetary policy, like we know massive central bank balance sheet increases don't accomplish their [stated] goals well. But we also expect central bank balance sheets to increase by further distorting the market. When central banks purchase things, whoever they bought it from now has money that didn't exist before the transaction. This money doesn't "trickle down" into the economy, instead it more so pools with these people that are active in the capital markets, and they are trying to figure out how to make more of that money faster than the central bank buys and creates more. So the only way to do that is to attempt greater and greater deals. Because there is nothing else to buy - the central bank already bought the "good investments" (bundles of mortgages, treasuries, investment grade corporate bonds, even some junk bonds) and is also looking for more just like you are! So now you have to take greater risks, maybe this $29 Billion deal that the central bank won't try to get in on!
The conundrum is that now the capital markets are expecting the central bank to buy everything, especially the dips. (most central banks don't buy stocks, but when they buy fairly illiquid bonds from people those people often buy stocks. in US a lot of the stimulus money came directly from the central bank after Congress modified its charter to give currency directly to people in exchange for nothing, and the recipients also bought stocks. the same sentiment is distributed in all socioeconomic classes even the top 0.01%.). So if the central bank gives a hint at reducing purchases (called "tapering"), the markets crash, and the central bank is strongly advised to continue!
The stated purpose is to get people to invest in "main street", instead of just the same small collection of assets. Turns out, it doesn't matter and nobody wants to invest in random entrepreneurs. The market is signaling that it would rather pay to not invest in randoms (in many parts of the world, government bonds have a negative yield, which means people are paying to own a bond while also further losing on inflation). So if you do have access to the capital markets due to your pedigree or network or net worth, the stuff you sell - your company's shares that you typed up on a sheet of paper, or whatever - will have a much higher valuation because other people have nothing else [eligible] to buy and need to put their money somewhere!
The US is the strongest hold out on negative interest rates, and is the largest market too, so the anticipation of the "season finale" is that the US gets to that territory as well, and then we really get to see some fireworks in the market as it is a major psychology barrier as well. Watch the 2 year and the 10 year treasury rates, as they are seen as having the most liquidity and trading activity.
https://www.treasury.gov/resource-center/data-chart-center/i...
As you can see they are really close to 0% right now, for a prolongued period of time. Getting to this negative stage requires SOOOOooooo much infathomable amounts of money, hoarding government bonds. But the central bank is the main purchaser of these bonds, from both the treasury and private owners on the secondary market, as they buy they push the yields closer to zero. (bond price increase = lowers yield)
fun times ahead! expect greater valuations and quick!