Down goes the Dow

Why are you always so down on corporate buybacks?

Historically corporate buybacks peak at market tops, and nadir at market bottoms. Stock buybacks are at record level. Stock buybacks are done to boost or mask declining earnings. If a company borrows money to finance the stock buybacks thru leverage they have effectively put shareholders on margin. Once market leader Apple has purchased $Billions of stock at an average of $115 a share. Market disaster IBM has purchased $Billions of stack at ever declining prices.

Igy

Ghost of Igloi wrote:

agip,

QE not that must effect? $4.4 Trillion dollars from the US alone? Corporate buyback driven by the same? Japan and Euro Zone late to the CB bond buying party double down?

I'm speechless.

Igy

I don't think there is any proof that QE has led to a material lowering of intermediate and long term rates. In fact, I found this - I haven't fact checked it but it has a fascinating graph that shows that often when a round of QE STOPS, interest rates have FALLEN.

Which is the opposite of what you'd expect, if you think QE is able to lower longer term rates. You would expect rates to RISE when QE stops.

I think what QE does is put more cash out in the world, where ideally it gets loaned out to businesses, to stimulate the economy. The problem is that the money just sits in the banks since loan demand is slack.

chart:

excess reserves:

Ghost of Igloi wrote:

Historically corporate buybacks peak at market tops, and nadir at market bottoms. Stock buybacks are at record level. Stock buybacks are done to boost or mask declining earnings. If a company borrows money to finance the stock buybacks thru leverage they have effectively put shareholders on margin. Once market leader Apple has purchased $Billions of stock at an average of $115 a share. Market disaster IBM has purchased $Billions of stack at ever declining prices.

Igy

I'm not sure if you're purposely trying to be deceptive, or if you simply don't have a complete understanding of the topic. Buybacks boost earnings per share, not earnings. And they are not all leveraged. For those that are, a strong argument could be made in their favor given the historically low rates. Finally, Apple's recent aggressive buybacks have been at much lower than $115/sh.

re buybacks and lack of IPOs...I think it is fairly clear that in 50 years the public markets will be much less important than today. Seems clear to me that companies would rather not be public. And with the massive new wealth around the world looking for a home...I suspect we'll see reductions in US share counts for a long time.

Although if interest rates rise much that might change - bonds yielding more would suck money out of equity.

agip,

Good article, which I am generally in agreement with. However, the Fed reached the zero bound early on in the financial crisis. The intent was not only to force investors into risk assets, but to support the automobile and housing industries. The trend in interest rates once the Fed reached the zero bound were for interest rates to continue lower, that is illustrated in the chart. Furthermore, each time the global markets have hit a road bump central banks have embarked on other forms of stimulus. At those points the first move was out of bonds and into equities, and at each successive point the rise in yield was less and the overall effect on risk assets more muted.

Certainly there is a deflationary trend that is evident in commodities, but is that more a function of the distortions caused by easy money? I think so.

In summary, supply and demand dynamics would argue that if one were to take one of the largest buyers of Treasury securities out of market that interest rates would float higher. Keep in mind the Fed continue to roll over their debt. Same can be said of the other central banks.

The distortions created by the central banks have created an environment that is hard to predict over the short run. I find it hard to imagine a benign conclusion to this historic period of central bank intervention. There is a reason the MSCI All country World Index is down 7.55% over the past year. There are limits to everything, and the business cycle cannot be repealed no matter how easy money is.

Igy

if the fed never bought longer term treasuries...what would the interest rate be? On the 10 year...now it is 1.8%....maybe it would be 2.0? 2.1% With the global appetiite for bonds so strong, I doubt the government would have had a problem placing the bonds at similar interest rates.

(might want to check your #s on the MSCI index - I think the number over the last 52 weeks is minus 1.8%.

But maybe you are speaking of how far we are from a peak.)

Knead,

Deceptive, I see the crap thrown at me by you and other posters. You can't handle the truth.

Earning Per Share is what is highlighted on earnings calls and what CEOs bonuses are based on. The game is to boost EPS. To think otherwise is the true deception and that goes along with non-GAAP accounting. So don't give me your weak accusations.

If a company funds buyback with borrowed money, that is the definition of a

leveraged purchase. Your assumptions on Apple's purchases is that those prices will be good prices going forward, that was not the case with IBM. That was the same assumption early on in the IBM buyback program and it proved to be a false assumption.

Hey, if you think you are right, run with it and invest your money. It doesn't matter to me that you are wrong in your views.

Igy

agip,

What will change that is when all these unicorns turn out to be fantasy stories. A lot of people will be burned when AI, the "internet of thing," coders, and this other hyped nonsense is a unicorn, more fantasy for fakers.

Igy

What crap have I thrown at you? And what accusations?

I merely took you incomplete assessment and filled in some of the blanks. The fact that you then reitated what I said proves that you accept what you wrote was not complete.

This is criticism, not a personal attack. I assume you understand the difference.

agip,

ACWI: As of close June 3rd -7.55%, as of this moment -5.56%.

Igy

Knead,

Good enough.

I write what is in my head at the time. I am more than willing to explain my views. If anything is left out or not clear, data, prose or otherwise it is an unintentional omission or a simple error.

I have views which I enjoy expressing. If one disagrees fine. I do believe that one opens themselves up to criticism when challenging conventional thinking.

Igy

Ghost of Igloi wrote:

agip,

ACWI: As of close June 3rd -7.55%, as of this moment -5.56%.

Igy

I was looking at an ETF that tracks it and according to morningstar, one year -1.83%.

Maybe you aren't counting dividends? That would account for most of the discrepancy.

or we're talking different indices.

I'm looking at ACWI

agip,

MS for June 3rd. Thompson One for today. I assume the difference is the dividends.

Igy

"I wince when people talk about a quarter point Fed move as a potential "policy mistake." Here's your policy mistake."

pic.twitter.com/OJhEg9Mz5…

--John Hussman

I wince whenever John Hussman opens his mouth.

Bulb,

And I wince when I think how much you add to any discussion...

0

Igy

Bulb,

...for you:

https://mobile.twitter.com/hussmanjp/status/737665866012188672?p=v

Igy

Wince some more Mr. dim Light Bulb...

http://www.cnbc.com/2016/06/09/blackrock-what-you-should-take-away-from-icahn-soros-bearishness.html

Igy