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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joego1's picture

Janet looks like shes working on a big steamer.

AssFire's picture

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

ZippyBananaPants's picture

I thought they were not good swimmers?

max2205's picture

She has chicklets for teeth!

smlbizman's picture

that one eye needs a circumcision...

eatthebanksters's picture

She has kids?  Who would do her?  

RockyRacoon's picture

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

BoNeSxxx's picture



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

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. 

LasVegasDave's picture

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

He was a Mensch.

GMadScientist's picture

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

LasVegasDave's picture

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

Farqued Up's picture

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

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.

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 :)

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.

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.

Eyeroller's picture

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

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.



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.

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.

daveO's picture

Two words. Executive compensation.

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

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.

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.

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. 

assistedliving's picture

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


God Bless Amurika

Jacksons Ghost's picture

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

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.

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."

thinkmoretalkless's picture

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

Get the Viagra!!!

Salzburg1756's picture

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

Fukushima Fricassee's picture

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

Dexter Morgan's picture

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

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.

Eyeroller's picture

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

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.

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!

daveO's picture

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

wmbz's picture

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

Roast in hell Jack!

chunga's picture

She does have a beak!

optimator's picture

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

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.

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.

JenkinsLane's picture

Great article Tyler.

Skateboarder's picture

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

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.

ISEEIT's picture

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

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.