Here Is The Reason Why Stocks Just Had Their Best Month Since October 2011

Tyler Durden's picture


Despite ending the month with a whimper, after Fed vice-chairman's hawkish words spooked the market on Friday afternoon, February was the best month for equities in over three years - since October of 2011 - driven by a 7% Nasdaq surge on the back of a gigantic move higher in Apple. And yet, as we have shown time and again, none of this reflects the "decoupling" US underlying economy, which if anything has rapidly recoupled with the rest of the world following 38 data "misses" and only 6 "beats"- the worst "surprise" index in 12 months...

... a world which as Goldman recently showed is now in outright contraction for the first time since 2012.

It also certainly wasn't earnings: February was the first month in which we showed that as a result of plunging revenue and EPS guidance and deteriorating sales and profitability, 2015 will be the first year since Lehman when there will be a full year decline in year-over-year sales.

So if not the economy or fundamentals, and if not the Fed, which as we know is still on sabbatical after its massive QE1-2-Twist-3 $3 trillion liquidity injection, just what has pushed stocks up to jawdropping all time highs?

Here, courtesy of Deutsche Bank, is the answer:

In case it is unclear just what the chart above shows, here is DB's explanation: "buyback announcements have surged with February ($98bn) posting the  largest monthly tally on record. The pace of actual buybacks tends to closely follow that of announcements."

And there you have it: the highest number of monthly buyback announcements in history, which for a market that may be broken but can still discount what companies will do (now that they have committed to buybacks) is merely frontrunning the most cost-insensitive buyer in the world: corporate management teams themselves.

It should thus come as no surprise why the S&P500 soared to record highs at a time when US economic data tumbled at the fastest pace in years. It should also explain the relentless buying of AAPL stock (among others), which pushed the Nasdaq to just why of 5000: recall that it was less than 3 weeks ago that AAPL announced it would proceed with merely its latest debt-funded share buyback.

It also explains why, in the absence of the Fed, stocks continue to rise as if QE was still taking place: simply said, bondholders - starved for any yield in an increasingly NIRP world - have taken the place of the Federal Reserve, and are willing to throw any money at companies who promise even the tiniest of returns over Treasuries, oblivious if all the proceeds will be used immediately to buyback stock, thus pushing equity prices even higher, but benefiting not only shareholders but management teams who equity-linked compensation has likewise never been higher.

To be sure, this theater of financial engineering - because stocks are not going up on any resemblance of fundamental reasons but simply due to expanding balance sheet leverage - will continue only until it can no longer continue.

What do we mean by that? Two things:

First, we have previously shown the case studies of Herbalife...


And IBM...


... both of which soared as long as they could lever up, and issue debt which it would promptly be used to repurchase stock which in an already massively illiquid market, meant soaring stock prices. However, once net debt got prohibitively large and creditors would no longer lend, the company had no choice but to halt the buybacks:


and IBM:


We know what has happened to both companies' stock prices since.

The second issue is even more troubling. Recall also from one month ago that according to Goldman's calculations, the biggest source of net inflows, i.e., buyer of stocks, in 2015, will be companies themsleves. Aka: lots and lots of buybacks.... but apparently not enough.

According to Goldman, in 2015 buybacks will amount to a near record $450 billion, making corporations by far the biggest source of equity buying in the US stock market (at least until the Fed returns with QE4). In fact, corporations are now using the generous funds of creditors to offset a little over $400 billion in equity withdrawals (i.e., sales) by both households and pensions, which is also understandable: with Millennials now a lost generations courtesy of an economy that just refuses to recover (aside for the S&P500 of course), the retiring baby boomers who are liquidating ever greater amount of stocks as they retire in droves, are not being offset by a new generation of stock inflows.

For now, corporate buybacks are offsetting this record demand by an ever-older population to cash out of the market and do whatever retirees do in this day and age.

But once the debt levels of corporations, already at record high levels...


... starts becoming a concern to even the most desperate of fixed income managers of "other people's money", and even "Investment Grade" companies rapidly approach Herbalife's leverage levels - now that median EBITDA levels are the lowest relative to total market enterprise value in history - just who will step into a market that has already soaked up every last source of possible stock buying, and become the buyer of last, and only, resort?


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Sat, 02/28/2015 - 16:06 | 5840236 joego1
joego1's picture

Janet looks like shes working on a big steamer.

Sat, 02/28/2015 - 16:22 | 5840271 AssFire
AssFire's picture

No doubt, she's dropping the Cosby kids by the pool.

Sat, 02/28/2015 - 16:54 | 5840350 ZippyBananaPants
ZippyBananaPants's picture

I thought they were not good swimmers?

Sat, 02/28/2015 - 18:39 | 5840632 max2205
max2205's picture

She has chicklets for teeth!

Sat, 02/28/2015 - 19:19 | 5840782 smlbizman
smlbizman's picture

that one eye needs a circumcision...

Sat, 02/28/2015 - 19:49 | 5840855 eatthebanksters
eatthebanksters's picture

She has kids?  Who would do her?  

Sat, 02/28/2015 - 23:11 | 5841441 RockyRacoon
RockyRacoon's picture

Captain Kangaroo... I swear.  Bob Keeshan didn't die, he got a sex change and went into economics. 

Sun, 03/01/2015 - 09:55 | 5842187 BoNeSxxx
BoNeSxxx's picture



^^^^ # of babies eaten by Jellen in her rise to the top of the fed.

Sat, 02/28/2015 - 17:32 | 5840437 StupidEarthlings
StupidEarthlings's picture

I thought it was droppin the Cosby kids AT the pool?..

Eh...close enough i guess.

Kinda like shittin near the toilet..steada in it.

But im just an observer. 

Sat, 02/28/2015 - 17:51 | 5840482 LasVegasDave
LasVegasDave's picture

Think ZH will have anything positive to post about the death of this Yid?

He was a Mensch.

Sat, 02/28/2015 - 18:25 | 5840582 GMadScientist
GMadScientist's picture

Hope the fucker suffered long and hard during chemo for nothing.

Sat, 02/28/2015 - 19:28 | 5840806 LasVegasDave
LasVegasDave's picture

If you lived 100 lives you'd never accomplish 1/10 of what benmoshe did.  Let that sink in asshole.

Sat, 02/28/2015 - 19:52 | 5840867 Farqued Up
Farqued Up's picture

So...enlighten us, the article highlighted his acceptance of taxpayer bailout money. What has you so upbeat?

Sat, 02/28/2015 - 20:57 | 5841088 GMadScientist
GMadScientist's picture

You're right. I haven't even stolen from a single American, much less hundreds of millions of them.

Now stop sucking a corpse's dick, asshole.

Sat, 02/28/2015 - 17:32 | 5840439 Sir SpeaksALot
Sir SpeaksALot's picture

It s much cheaper to actually buyback the stocks when they go down, so buyback announcments might actually mean that they are hoping for the market crash to buy shit back :)

Sat, 02/28/2015 - 18:04 | 5840517 Headbanger
Headbanger's picture

No..  Moar like record buy back announcements are being used to sucker in all the muppets as bag holders before the market implodes.

Sat, 02/28/2015 - 19:53 | 5840873 Bro of the Sorr...
Bro of the Sorrowful Figure's picture

not sure there are too many muppets left to sucker. i think at this point these record this and that headlines are mainly used to keep the sheep in a constant state of CD. the itching reality that they are debt slaves and that the economy is a giant hoax needs to be constantly confronted by a spewing shit stream of positive economic data.

Sat, 02/28/2015 - 19:54 | 5840878 Eyeroller
Eyeroller's picture

That certainly was the case for what appears to be a spike in buybacks before the September 2008 plunge...

Sun, 03/01/2015 - 11:44 | 5842190 Griffin
Griffin's picture

I think that this adventure will end with a boom, and i dont mean that in a positive way.


Its not like this scam is a work of art, cut out of a solid block of granite.

Its is poorly designed and fragile like glass.

It could all go up in smoke lightning fast.



Sun, 03/01/2015 - 14:14 | 5842967 Nick Jihad
Nick Jihad's picture

In this case, the muppets are the shareholders, whose companies are being loaded up with debt, in order to juice the share price, so that management can extract undeserved bonuses.

Sat, 02/28/2015 - 19:51 | 5840865 eatthebanksters
eatthebanksters's picture

Except when money is cheap and you have no where else to use it...then who gives a fuck what something it while you can.

Sun, 03/01/2015 - 01:22 | 5841707 daveO
daveO's picture

Two words. Executive compensation.

Sat, 02/28/2015 - 20:29 | 5840479 NOTW777
NOTW777's picture

if you think the fed or other central banks are not still in the market, I have a bridge to sell you

Sun, 03/01/2015 - 04:59 | 5841886 Percy Crump
Percy Crump's picture

Do you have any proof that the fed or any central bank is buying anything in the market??  What are they buying?  Link please.  Thanks.

Sun, 03/01/2015 - 11:55 | 5842506 chinoslims
chinoslims's picture

It doesnt really matter if the central banks are buying anything.  They are creating an environment with NIRP and ZIRP for institutions to uber leverage on the cheap to buy risky assets.  If the Fed bought MBS from the banks and suppose to lend that money to people and nobody is borrowing, then where is the money going?  Its like the central banks are ordering the banks to whack  someone.  The central banks are calling for the hit and providing the gun and ammo.

Havent you noticed that devaluation of the yen generally leads to S&P levitation?   You dont have to follow zerohedge to know this.  Have you heard of the carry trade?  What are people buying when bOrrowing from the Japanese on the cheap?  Carry trades are made possible by central bank manipulation.

Also the CME Group has a discount rate for central banks to purchase futures contracts.  Theoritically, central banks (other than the Fed) can buy index futures.

Mon, 03/02/2015 - 04:28 | 5844914 Percy Crump
Percy Crump's picture

 "If" the Fed bought MBS...

 "Theoretically", central banks (other than the Fed) can buy index futures...  





What you say is pure have NO PROOF that the fed or central bank is buying anything.

Yes, I believe most of the government system is corrupt; (especially with the Obama admin.) but I can't prove much to amount to anything......and neither can anyone else. 

Sat, 02/28/2015 - 16:06 | 5840237 assistedliving
assistedliving's picture

what?  let my employee stock options expire worthless?  heck, if you cant "earn" it; buy it


God Bless Amurika

Sat, 02/28/2015 - 16:08 | 5840240 Jacksons Ghost
Jacksons Ghost's picture

Giant Circle Jerk? And we are suppose to be Bullish about this?

Sat, 02/28/2015 - 17:56 | 5840497 TheReplacement
TheReplacement's picture

Think of it as a giant game of musical chairs where the music never stops but they keep taking chairs away.  It is totally sustainable, for a while.

Sun, 03/01/2015 - 01:27 | 5841711 daveO
daveO's picture

On TeeVee, in the near future. "In economic news, today, the S&P 1 reached 1,000,000 for the first time. CEO Yellin said more buybacks are justified."

Sat, 02/28/2015 - 18:33 | 5840611 thinkmoretalkless
thinkmoretalkless's picture

Getting down to the last participant blowing their wad...

Get the Viagra!!!

Sat, 02/28/2015 - 16:09 | 5840246 Salzburg1756
Salzburg1756's picture

Can't be. It's not in my morning paper.

Sat, 02/28/2015 - 16:12 | 5840256 Fukushima Fricassee
Fukushima Fricassee's picture

Mr. Yellen looks happy and that means Obama's war plans must be on track.

Sat, 02/28/2015 - 16:26 | 5840284 Dexter Morgan
Dexter Morgan's picture

I could not understand what this old man was saying and could only think of PaMELLa and her big breasts.

Sat, 02/28/2015 - 18:36 | 5840622 andrewp111
andrewp111's picture

Not enough time. Obama leaves office on a high note (its his legacy you know), and dumps the war on his successor.

Sat, 02/28/2015 - 19:55 | 5840885 Eyeroller
Eyeroller's picture

Also the stock market crash will be dumped on his successor.

Sun, 03/01/2015 - 05:27 | 5841918 Percy Crump
Percy Crump's picture

There will be a huge stock market crash while obama is still acting as president.

And you are also correct.  His majesty Obama, will leave a shitty economy to the next president.

Sat, 02/28/2015 - 19:50 | 5840856 J Pancreas
J Pancreas's picture

Who is that disgusting dude in the pic at the bottom? He looks like he is literally taking a dump in the bed. What a gargoyle!

Sun, 03/01/2015 - 01:30 | 5841713 daveO
daveO's picture

Your debt massa', you stupid slave. Be nice now, and you might git to eat at the house on Sundee.

Sat, 02/28/2015 - 16:15 | 5840263 wmbz
wmbz's picture

Good lord, Jack Yellen is hard on the eyes! Like looking at Beelzebub's asshole!

Roast in hell Jack!

Sat, 02/28/2015 - 16:33 | 5840304 chunga
chunga's picture

She does have a beak!

Sat, 02/28/2015 - 19:13 | 5840765 optimator
optimator's picture

It would take a big bob job, and she'd still look J.......

Sat, 02/28/2015 - 16:22 | 5840273 honkadoo
honkadoo's picture

This is the type of meat that makes ZH enjoyable again.  No, the comments and commenters still reek of shit, but this is what is happening.

Sat, 02/28/2015 - 16:54 | 5840349 GMadScientist
GMadScientist's picture

Yes, you do.

Sun, 03/01/2015 - 13:05 | 5842731 disgruntled hou...
disgruntled housewife's picture

honkadoo- Can you elaborate on your slam of zero hedge commenters? I will agree that comments like "bring it on bitchez" are useless but if you skip those there are some people who are trying to make some valid observations or ask intriquing questions.

If you come from finance and have an extensive background of knowledge do share. I come here to learn more about the system of finance. It is far less intimidating than slogging through heavily jargoned textbooks.

I do not understand your need to include the slam.

Sat, 02/28/2015 - 16:29 | 5840292 JenkinsLane
JenkinsLane's picture

Great article Tyler.

Sat, 02/28/2015 - 16:42 | 5840323 Skateboarder
Skateboarder's picture

Totally solid, like an oldskool Tyler wrote it. Good Tyler material was what made this place.

Sat, 02/28/2015 - 17:10 | 5840394 Bay of Pigs
Bay of Pigs's picture

Everyone here should be plastering this article all over the net (I am). It's the only way to wake people the fuck up.

Sun, 03/01/2015 - 10:34 | 5842290 ISEEIT
ISEEIT's picture

Tyler shows up on RCP pretty regularly. RCP is a top notch mainstream aggregator.

Sat, 02/28/2015 - 17:31 | 5840433 Bilderberg Member
Bilderberg Member's picture

But it still took St. Louis Fed Pres. Bullard to start talking up extending QE3 last October to get the market to reverse its freefall. So you basically have BOTH companies and the Fed juicing stocks with debt issuance.

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