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Stock Bubble And Its Buyback Genesis Suddenly Vulnerable
Submitted by Jeffrey Snider via Alhambra Investment Partners,
Having now passed the anniversary of the “rising dollar”, it is interesting to see the related and continued effects on the stock bubble(s). As should be obvious by now, stock buybacks, funded via corporate bonds and loosely categorized C&I loans, are responsible for the post-QE3 nearly uninterrupted rise. Repurchases are forming a separate “liquidity” conduit, indirect leverage if you will, which has already started to fray. Various broader “market” indices have diverged, starting with the Russell 2000 in early 2014 (with the economic slowdown that was supposed to be an anomaly of weather).
Since then, other indices have also broken away, notably the broad NYSE Composite index which includes the greatest cluster of ETF’s. The deviation there coincides exactly with the “dollar” tightening in eurodollar liquidity and less-smoothened wholesale transactions.
There really cannot be much doubt anymore that QE is the central focus of the stock bubble, especially the third and fourth applications. The timing is so obvious as to preclude any other interpretation – most especially a growing and sustainable recovery that never materialized despite all public and heavy exaltation.
While there is undoubtedly some reinforcing inflation due to various views of “tail risks” and perceptions about volatility which become self-fulfilling, it really is repurchases that are driving price action. The most “effective” transmission is corporate debt funneled through shareholder returns, which are not very efficient in terms of economic circulation (especially by comparison to the opportunity cost of them).
In that respect, along with recession fears, it is perhaps quite significant that the S&P Buyback Index has suffered its first extended reversal since the 2012 slowdown, coincidental then to European concerns and just prior to both Draghi’s promise and QE3. It is unclear at the moment what exactly has caused that dramatic shift but the more likely explanations point to fears about corporate ability to continue repurchasing with economic weakness bearing down against both internal cash flow and even corporate bond pricing and liquidity.
Whatever the case may be ultimately, the stock bubble’s ties to central bank policy seem to suggest the quite waning influence; both in terms of active participation (on the Fed side) and, more importantly in my view, how blind faith in monetarism may be reversing because of that widespread economic fruitlessness. Stock momentum, for the first time since 2012, is decidedly waning on all fronts:
I find it significant that the broader market index, the NYSE Composite, has shifted negative in its one-year comparison again tied to last year’s “dollar” disruption. At the very least it might imply that the central bank paradigm that lasted since the middle of 2012 has greatly eroded or even ended.
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Just buy it....it's all under control. lol. Put a photo of Yellen on your trading platform to build confidence:-) Or the Bernank playing
cello in elementary school. They've got your back:-)
Set one of these next to your monitor. When you just can't get yourself to pull the trigger on moar Apple, Netflix, Russelll 2000 whatever because prices have never been higher and you know that they shouldn't at all be even close to as high as they are its simple, you need only pick him up and make him press the button for you.
Hell for 300$ you can get the trifecta. Greenspan, Bernanke AND Yellen. Dress them as superheros and buy a little globe which they can be positioned in a triangle to hold up over their heads thus symbolizing how for the past few decades they have been the ones holding up the entire world.
Repurchases are forming a separate “liquidity” conduit, indirect leverage if you will-
separate, conduit, indirect? wtf?? English please
Yes, the cons are doing it, so therefore it is a "con do it".
Thats right, the pigman said its under control. Old Yeller is in control. Party on!!
Off Topic: Big news out of the UK, looks like BoE will attempt to move towards normailization of interest rates. Due to economic recovery in the UK. Mortgages in the UK are variable and track the BoE interest rates. Any rise will shock the mortgage holders who cashed in on ultra cheap .75% interest rates. The great UK housing bubble is now under threat!
"
The era of ultra-cheap mortgages is coming to an end and interest rates could rise within months, the Governor of the Bank of England warned.
Rates in Britain have been at a record low of 0.5 per cent since March 2009 – slashing the cost of borrowing for millions of families.
But Mark Carney said households should now get ready for rates to rise at ‘around the turn of this year’ – opening up the possibility of a rate hike before Christmas or in the New Year."
Hmm, as the man who left Canada with a housing bubble and the biggest debt to GDP ratio at the time he left, I'm not really sure I believe him. Mind, Osborne is almost a moron so maybe Carney sees something.
DavidC
Bubble? No bubble! Just new highs in the NASDAQ today. No bubble!
DavidC
Apparently Puerto Rico did miss a bond payment...
http://www.marketwatch.com/story/what-puerto-ricos-missed-debt-payment-m...
Guess they made the first one but missed this one... Sort of snuck through the news quietly.
i used to do research and shit but now i just btfd. fuck it.
No worries! The HFT's have it under control. Just a little skimming, errr... normal fluctuation.
Indirect leverage? Pull the other one.