This page has been archived and commenting is disabled.
Did Corporate Buybacks Just Jump The Shark?
While it should be no surprise to anyone that buybacks have been a major support of the market for the last few years (as we explicitly showed here and here in terms of earnings manipulation and here in terms of ill-timing), the following chart may give some pause for thought as to whether that is now a good thing or not. Not only is the credit market 'atlas' starting to shrug at its own 'frothiness', as it is used-and-abused by every poor-performing company to borrow-and-lever give-backs to shareholders, but the amount of 'outperformance' of the Buyback 'achievers' index (A gauge of companies that repurchased at least 5% of their shares in the previous 12 months) over the market is eerily similar now to the size of the outperformance at the top in 2007...
Charts: Bloomberg
»
- 9897 reads
- Printer-friendly version
- Send to friend
- advertisements -
Corporations (aka agents of the Federal Reserve) can always lay off more people to buyback stock.
All is well. #fail
That is the clear capital allocation decision being made all over the market. It creates a self-reinforcing downward cycle for the economy, as without new hires, the economy does not have new consumers. Hard to be consuming without a job.
But hey...this is a big part of the new normal we now live in...as the income stratification between the 1% and the 99% continues to spiral upwardly and out of control.
Hi ho.
fewer shares creates an interesting leverage for share prices....maybe they forgot to realize it works on the downside too.
My thoughts exactly. Good size POMO today, must push bond yields down, but may still close green. Watch volume. No POMO tomorrow, could be interesting.
Well, if some outsourcing is good and issuing debt to buy back some of the shares is good, why not go all the way:
- Outsource everything (but the CEO) AND load up on debt and buy back the entire capital of the company
The logic currently being preached by Financial "wizards" implies that such an action would lead to the ultimate in corporate success ...
The time difference between peaks is compressing. As Forrest Gump said 'stupid is as stupid does'
What a study of heuristics.
Corporations have a lousy history when it comes to buybacks. They burn up cash buying their stock back at over-inflated prices. Very rarely will they buy them back when the market is in the tank. Then when they need cah later on they issue new stock. The ultimate buy high sell low investors.
I believe that ZH had an article a while ago about how the executives at these companies profit the most from buy backs.
Edit: Maybe it was the WSJ, I found articles about it there, but I would not subscribe to that POS website.
+1 insiders always profit the most no matter what. the market is a way for insiders to steal pension money. nothing more, nothing less.
do a stock buy back with borrowed money - take bonus
go private - take bonus
go public - take bonus
go bankrupt - take bonus
have a great quarter - take bonus
pay off bond early - take bonus
Take a shit - take bonus
Dont forget it can turn zero sum:
Cut bonuses of others - take bonus
layoffs - bonus
Get bailed out with taxpayer money - bonus!
clearly, they have what it takes
Yes, like this, for example: http://www.zerohedge.com/news/trade-record-corporate-profits-your-misera...
or this: http://www.zerohedge.com/news/2012-10-22/no-soaring-deficits-do-not-mean...
I believe executives are being paid in stock options (as a result of the public complaining about executive pay packages), so it is in their best interest to borrow money cheaply and initiate a buy back to raise the price of their company's stock. Executives at corporations are all looking at what is best short term and what will help everyone in the executive suite get rich quick (think Bob Nardelli). If you look at recent earnings and the failure for some companies to meet expectations, it's almost as if outsourcing jobs and gutting the US consumer class (as robertocarlos pointed out in the China PMI thread) is not working out for future earnings. Oh well seemed like a good idea at the time.
That's the problem with their short term quarter to quarter thinking. There are no long term plans other than to consolidate and eliminate. Eventually it all catches up , because they run out of things to eliminate.
Not only that, it's also a Tragedy of the Commons.
You see, it's always "somebody else" who is supposed to keep people employed so that they can afford "our" products, yet all big companies are downsizing. Unsurprisingly, governments were increasingly the "somebody else".
+1 for Garrett Hardin reference
Max Keiser said on his RT show today that company stock buybacks is narcissistic behavior. Those buybacks drive up a company's stock price. In passing, Keiser mentioned that Carl Icahn's buying of Herbalife shares has driven up that company's price. Though a pyramid scheme, Icahn's buying the available Herbalife shares is creating a "short squeeze" on hedge fund operator Bill Ackmann, who sold Herbalife short and has badmouthed the stock.
Somebody is defending the 1640 ES price with all they got - is that you Mr. Henry?
Short Fortress Investment Group. Look it up....
Utilities are acting screwy.
So based on the other ZH article (good article BTW), that indicated that something like 80% of profit growth was due to buybacks, when people measure the E in P/E, is that on a per share basis? Thus the growth of P/E has been basically fake and that had shares been held constant P/E would really be in the stratosphere?
Exactly right. Everything about this whole market is phoney. In reality we should be trading around S&P 600, instead we are trading (actually the robots are trading) at artificial levels based on fake numbers.
Dow Jones Utilities fell 12.5% in the first 5 minutes.
This has to be bullish!!!
Oh wait, 20 minutes later the Utilities are down 1.5%.
More FM AM - mirrors and magic.
Over many years, Mozilo sold hundreds of millions of dollars in stock personally, even while publicly touting the stock and using shareholder funds to buy back stock to support the share price...
Buyback at the highs. Nice move. Or just BS to get people to buy as in the 90's with the DOT COM bubble.
Share buyback overdrive------------>See IBM
On a side note, my corp is using EBITDA accounting...
looks like BTFD crew are reporting to work ...
Share buy back means, to me, that management does not know what to do with extra cash. They get rewarded instead of being punished,