Loss of Dividend Spending
I have gone on and on with a highly bearish outlook and repeated stated that for myself the down side risks to the market far out weight potential gains. There have been some areas that have done fine since I left the market, but I am one with what I call "conservative greed." My instincts told me to just wait and watch. They still tell me this market isn't worth the risk.
There was an interesting quote with Marketbeat today:
Bennet Sedacca, president of Atlantic Advisors LLC, says at one point he held a position in the preferred shares of the GSEs, eventually selling them for a loss. “We came to the conclusion that the equity holders of Fannie and Freddie will get nothing and preferred holders will not get dividends for years,” he said late Wednesday.
I have no idea how much of the economy is driven by dividends, but I suspect there are a number of seniors who rely on dividends as part of their income. This is just another area that consumer spending is going to be hurt.
I suspect about 2/3rds of the dividends paid by financial institutions have been from the ponzi-scheme snake-oil nature of the business. By the time they properly capitalize having 2-3 times as many shares would not surprise me. That means over the long term dividends are likely to be 10-20% of their peak. But I also suspect many will have a few years of no dividends.
I suspect overall dividend payouts across all sectors will be 1/3rd to 1/2 as companies end up cutting dividends.
After the crash in the early 2000s there was a lot of information out there that dividend stocks simply did much, much better than the rest of the market. Personally, I think dividend stocks have been priced relatively higher compared to that period because of all the news and hype that "dividend stocks always do better in a downturn." So now they have two effects working against them, the over pricing due to the hype about their safety and the recessionary effects that are likely to reduce dividends all over the place.
This is going to hurt a lot of retirement plans...