coach d,
Where is your growth going to come from? Why does waiting until December or next year generate growth? Clear lack of global demand in my view.
Igy
coach d,
Where is your growth going to come from? Why does waiting until December or next year generate growth? Clear lack of global demand in my view.
Igy
And one wonders why the market continues to struggle:
"After snapping up trillions of dollars of their own stock in a five-year shopping binge that dwarfed every other buyer, U.S. companies from Apple Inc. to IBM Corp. just put on the brakes. Announced repurchases dropped 38 percent to $244 billion in the last four months, the biggest decline since 2009, data compiled by Birinyi Associates and Bloomberg show.â€
Ghost of Igloi wrote:
Toucher,
Tim Cook of Apple is considered one of the best CEOs in the country. From September 30, 2013 through then end of last December Apple purchased 760 million shares of their own stock at an average of $115 a share. The stock closed today at $96.43.
I'll let you do the math.
No growth, more debt on the balance sheet, and, yes, less cash.
Brilliant.
Igy
You are amazingly shortsighted, not to mention delusional to think you are smarter than Tim Cook.
Apple's assets are something like $100 Billion more than its liabilities. Their revenues are through the roof. I'm siding with TC on this one and betting down the road that $115/share will look cheap.
If your going to cherry pick an example, try picking one that hasn't been among the most successful companies in the world for the last decade.
Toucher,
I picked Apple to illustrate a point since it has been a clear leader in this Bull market cycle, and as I stated Mr. Cook is considered one of the top CEOs. However, economic conditions can overwhelm even the smartest individuals, and low interest rates are no guarantee that buying back company stock was a good idea. In fact corporation have a history of stock buybacks at record levels near a market top. As illustrated in other posts stock buybacks have driven most of the market performance over the past year, according to S&P a positive 4% tailwind to earnings. Furthermore, it appears stock buybacks are off their record rate in 2016.
As to cherry picking, in this case I will give you a rotten apple to pick, look no further than IBM. The company has been one of the serial stock buyback abusers to the detriment of shareholders. Financial engineering has taken a stock that was over $200 three years ago, closed today at $146. Billions of shareholder valued erased with no growth on the horizon.
Igy
Rotten apple picking for IBM:
Igy
I'm not sure if you are intentionally being deceptive by conflating Apple with your "history" statement, but they clearly don't belong together. If you are suggesting that Apple's buybacks have been primarily at market highs, you are dead wrong.
Apple has been effectively following a dollar-cost-averaging approach to their buybacks. Some purchases have been at market highs and others at lows. In fact they recently embarked in an enhanced buyback program to take advantage of their recent bargain prices. That $115 average you cited will be coming down while the stock price continues to go up.
You mention a 4% tailwinds to earnings, though I think you meant earnings per share. This is a good thing and I assume you know that. In fact, that is one of the major objectives of a buyback. There are some who currently believe the market is overvalued. This is one strategy to help reverse that scenario.
Toucher,
Stock buybacks have added a 4% tailwind to S&P 500 earnings calculated on a per share basis. You are making an assumption, perhaps correct, perhaps incorrect, that the share buybacks will be accretive for Apple shareholders over time. Historically that would be a flawed assumption for most buybacks, the IBM example is but one.
One point you seem to be omitting is most stock buybacks are financed with bond debt. The bonds will mature and at that time the bonds must be paid for with cash or refinanced. What happens if the share price is lower and the interest rate to refinance is higher?
Igy
Toucher,
John Hussman outlines how stock buybacks put investors on margin:
https://www.hussmanfunds.com/wmc/wmc150817.htm
Igy
It seems you are purposely trying to deflect this discussion to fit some preconceived narrative of yours.
Since Apple's assets exceed their obligations by approximately $100 Billion, they will have no trouble paying debt issued at microscopic interest rates. Plain and simple, this is good business.
As for the tailwind you keep mentioning, I have already pointed out how this a desirable aspect of stock buybacks. This is irrefutable.
Tougher,
What is irrefutable is declining corporate earnings and the mountain of debt on corporate balance sheets. Everything else is dancing around the edges.
Igy
U.S. stock futures on Tuesday pointed to a modestly higher open as investors stayed in wait-and-see mode, but that still put the market on track to bounce back from the previous day's dip.
A fresh reading on new-home sales is due just after the opening bell, while home builder Toll Brothers Inc.(TOL) and electronics retailer Best Buy Co.(BBY) rose and fell, respectively, after posting earnings ahead of the bell.
S&P 500 futures gained 6.95 points, or 0.3%, to 2,052.25, while Dow Jones Industrial Average futures rose by 54 points, or 0.3%, to 17,524. Nasdaq-100 futures tacked on 17 points, or 0.4%, to 4,369.50.
On Monday, the S&P 500 closed 0.2% lower, while the Dow and Nasdaq Composite both shed 0.1%, as Federal Reserve officials continued to signal that U.S. interest rates could rise as soon as next month.
"Investors are very much in wait-and-see mode right now with the next month bringing two very notable risk events, the EU referendum in the U.K. and a possible rate hike from the Fed," said Craig Erlam, Oanda's senior market analyst, in a note Tuesday. "Investors have been in denial about the potential for a summer rate hike for most of this year, but appear to be coming around to the idea," he added. The market sees a 30% chance of a June hike and a 46% chance of a July move, according to the CME Group's FedWatch tool.
MarketWatching
"Investors are very much in the pray for a miracle mode right now with the next month bringing two very notable risk events, the EU referendum in the U.K. and a possible rate hike from the Fed," said Igy, in a note Tuesday. "Investors have been in denial about the potential for a severe market downturn for most of this year, but appear to be coming around to the idea. The market sees a 30% drop if based on historical earnings at this stage of the cycle," he added.
No one has been "in denial about the potential for a severe market downturn". That potential always exists and every investor knows that.
Try,
OK. Explain this then, S&P 500 earnings peaked in the third quarter of 2014, and the index ended that period at 1,982. Here we stand 20 months later and earnings have dropped 18.5%, yet the index is currently at 2,067. That appears to be denial to me.
Igy
well!
So we had good #s from walmart, we had an outstanding leading economic indicators number and now we have a very high new home sales number. At least there is some gold in the lead now.
Existing home sales jumped to highest # in years.
Richmond mfgring index flat and rangebound
same store sales got even worse! lowest number yet +0.4%. This number has been awful for a long time.
Ghost of Igloi wrote:
Tim Cook of Apple is considered one of the best CEOs in the country
I have long defended Apple and Tim Cook (look up my posts).
But I have seen the light.
Tim Cook is an excellent business man and he got the Supply Chain down. But he is not a visionary.
Efforts these days seem to be focused around presentation (redesign of their stores), entering new markets (India has been challenging with high import tariffs) and pricing optimization (16GB/64GB tier, no 32GB option).
Everything new that comes out seems more incremental than revolutionary.
Also, neglecting the pro users is a big mistake, as they are typically leaders. Mac Pro was last updated over 2 years ago. Aperture was discontinued. Office suite was stripped of features.
Apple is still a good company, but they're not the 2000's success story anymore.
First, it's not about earnings now. It's about future earnings.
Second, your stats support my previous post. The market may go down as a result of being overvalued. But no one - NO ONE - knows when. For now, at least, there is some short term optimism. That does not mean investors are unaware that leaner times are ahead.
remember the massive impact on the SP500 earnings of a crashed energy and mining sector. plus the strong dollar. Earnings have been growing if you adjust for those things.
But most importantly, all that is reversing.
oil stocks are up 9% this year
gold is much higher - plus 17% this year to date.
the dollar is falling
All the headwinds that have been reducing earnings for over a year are turning into tailwinds.
This is why the sp500 didn't fall with earnings...the market was seeing the earnings problems as temporary and valley-like...not a bottomless pit.
Try,
OK. If it was about future earnings, since each of the last 6 quarters have declined, why has the market continued to climb? It seems like your short term optimism is based more on hope than fact. Fundamentally an investment should reflect actual earnings, rather than just hope for an increase. I still think you and most investors are blind to that reality. Market history supports my view.
Igy
Your view is myopic. Look beyond the length of your arm. And read what agip had to say. He makes a lot of sense.
I'm not sure how me and most investors being aware of a future downturn is being blind to reality.