But the newness has nothing to do with technology, the internet, valuations or inflation. It is a new era because money flows have been warped beyond recognition. And to see how truly unique the 1990s have been, I prepared a similar chart of demand and supply from the nine years of 1954 to 1962, a period of dramatically rising stock prices. And now a more typical picture of bull market supply. In the above charts, capital markets operate as we expect.
Households buy stock and corporations issue it.
The truth is that the stock market can only operate as an inter-generational cash transfer mechanism during periods when we have a falling ratio of retirees to workers. As soon as a static or declining pool of workers detects selling pressure from retirees in the form of flat or falling prices, they will stop investing until dividend yields compensate them for the risk of rising retiree sales. Don't expect foreign investment dollars to bail out our stock market. Indeed, the demographics for the G7 nations are worse than ours. See the graphs at the end of Urban Institute Research Paper .