The Federal Reserve national flow of funds accounts (Tables F102 and L102) show that current yields for cash dividends on U.S. corporate equities fell significantly in 2005.

The current yield for the entire market is calculated by comparing the Federal Reserve’s figure for total market value of corporate equities to total disbursements on cash dividends.

The graph shows that the downtrend in dividend yields was constant throughout 2005.

	Dividend Yield on US Stocks

Between Q4 2004 and Q4 2005, average dividend yields fell from 4.2% to 1.5%, while long bond rates held steady or rose slightly.

The decline in dividend yield was due primarily to a sharp reduction in amounts paid as dividends, rather than to an increase in the market value of equities.

The sponsors of ‘defined benefits’ pension plans controlled, as of December 2004, about US$2.5 trillion in equities belonging, indirectly, to the beneficiaries of these plans.

(See: “Who’s Holding America’s Stock Proxies?“)

In December 2004, U.S. equities, even after the crash of 2000-2001, were still substantially over-valued.

(See: “Equity Values“)

In order for stock prices to reflect values that were customary for a century before the advent of stock buybacks, prices would have to drop between 20% (earnings basis) and 50% (dividend yield basis).

In the case of ‘defined benefits’ pension plans, this would represent a loss of between US$500 billion and US$1.2 trillion in market value of pension portfolios!

To put this in context, such an ‘adjustment’ would be equivalent to from 90% to 210% of before-tax corporate profits in 2004.

In another context, a fall in valuation to historical levels would be equivalent to from one- and to two-thirds of all receipts of state and local governments in 2004.

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Federal Reserve Flow of Funds Accounts show that, at an annual rate, mutual fund net sales in Q3 2005 dropped to a nine year low. We must to go back to 1994 to find similar low levels of mutual fund sales.

In Q3 2005, government economists reported that Americans were spending more than they earned, "dissaving" at an annual rate of $132.9 billion (NIPA income statistics).

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