State Street

Why Stocks Are Sliding: For The First Time Since 2009 Spending On Buybacks Surpasses Free Cash Flow

The aggregate Buybacks to Free Cash Flow ratio for the S&P 500 exceeded 100% for the first time since October 2009. The ratio hit 108% on a TTM basis at the end of Q2, which represented a 12.9% increase quarter-over-quarter and a 42% increase year-over-year. The 10-year median ratio was 72.2%. And that, in a nutshell, is why the market is tumbling today - the biggest buyers of stock in the past 2 years, the corporations themselves, just priced themselves out of the market and no longer generate the cash needed to push their own stock to new all time highs.

Are Central Bankers Poised To Break The World Again?

In his Pulitzer-Prize-winning book, Lords of Finance, the economist Liaquat Ahamad tells the story of how four central bankers, driven by staunch adherence to the gold standard, “broke the world” and triggered the Great Depression. Today’s central bankers largely share a new conventional wisdom – about the benefits of loose monetary policy. Are monetary policymakers poised to break the world again?

Direct Evidence For The Supercycle

Nothing is ever permanent with the QE’s because they were doomed from the start. The “dollar” system can never be refined and remade to its prior station because it was irrevocably broken on August 9, 2007. All that QE’s have done is to create reverberation within the downward channel which may, in the end, only exacerbate the degree of imbalance that weighs on the inevitable shift.

The Exodus Begins: Oil ETFs See Biggest Outflows In 15 Months

Just as we warned previously (here, here, and here), the knife-catching, contango-crushed, BTFDers that piled over $6bn into Oil ETFs have severely underperformed this year. The USO ETF has fallen by more than 9% since the start of the year, whereas front-month U.S. oil futures have dipped by less than 3% on account of roll costs, and as of last week, investors have started to exit this massive position en masse. As Reuters reports, outflows from four of the largest oil-specific exchange traded funds reached $338 million in two weeks to April 8 - the first since September and largest since Jan 2014. It seems Goldman was right about "misguided retail investors."

This Is What Happens When The US Treasury Market Is Taken Hostage By "Malfunctioning Algos"

"In some instances, malfunctioning algorithms have interfered with market functioning, inundating trading venues with message traffic or creating sharp, short-lived spikes in prices as a result of other algorithms responding to the initial erroneous order flow."... "If liquidity is as bad as it is now, what’s going to happen when things really get adverse?” said Richard Schlanger, who co-manages about $30 billion in bonds as vice president at Pioneer Investments in Boston.

Frontrunning: March 6

  • 5 Things to Watch in February’s Jobs Report (WSJ)
  • Draghi Declares Victory for Bond-Buying Before It Starts (BBG)
  • Apple Pay Sign-Ups Get Tougher as Banks Respond to Fraud (WSJ)
  • As World’s Hottest Economy Unravels, Nigerians Feel the Squeeze (BBG)
  • EU discontent over French budget deal's 'political bazaar' (Reuters)
  • Foreign Takeovers See U.S. Losing Tax Revenue (WSJ)
  • Goldman Shareholders’ Hope for Bigger Payout Dashed by Fed (BBG)
  • Europe Stocks Headed for 31% Surge This Year Amid QE, Citi Says (BBG)
  • Dollar revs up for jobs data, euro bonds rally on ECB (Reuters)

Frontrunning: February 26

  • Goldman Employees Reaped $2 Billion From 2008 Options Last Year (BBG)
  • On Bush turf, Obama blames immigration woes on Republicans (Reuters)
  • Tougher Internet rules to hit cable, telecoms companies (Reuters)
  • Russia's Gazprom says can exempt rebel-held areas from Ukraine gas contract (Reuters)
  • Allianz Says Pimco Seeing ‘Substantially’ Lower Outflows (BBG)
  • Merkel Faces Stepped-Up Dissent on Greek Bailout in Party (BBG)
  • SEC Probes Companies’ Treatment of Whistleblowers (WSJ)
  • 2-Year Trek From Turf to Table Delays Cheaper U.S. Beef (BBG)
  • Turkish jets violate Greek air space (Kathimerini)

Frontrunning: February 23

  • Tsipras Tamed as Economists Declare Greece Loses Austerity Fight (BBG)
  • Greece readies reform plans to first sign of leftist unrest (Reuters)
  • Yellen Faces Congress Amid Direst Threat to Fed Since Dodd-Frank (BBG)
  • The war must go on: Kiev says cannot withdraw heavy weapons as attacks persist (Reuters)
  • Ukraine fears spread of war after blast in eastern city (Reuters)
  • Denmark Dismisses Report It Could Consider Capital Controls (BBG)
  • Deadline Nears on Homeland Security Funding Impasse (WSJ)
  • Gross Fund Hurt by Oil’s Plunge Amid Bets on Energy Bonds (BBG)

Frontrunning: January 26

  • Alexis Tsipras: the Syriza leader about to take charge in Greece (Guardian)
  • Tsipras to form anti-bailout Greek government after big victory (Reuters)
  • Tsipras Forges Anti-Austerity Coalition in EU Challenge (BBG)
  • East Coast braces, flights canceled as 'historic' blizzard bears down (Reuters)
  • Rebels press Ukraine offensive, Obama promises steps against Russian-backed 'aggression (Reuters)
  • Syriza Victory Brings Hope for Immigrants of EU Access (BBG)
  • For Saudis, Falling Demand for Oil Is the Biggest Concern (BBG)
  • Oil prices fall on market relief over Saudi policy (Reuters)

Frontrunning: January 23

  • Saudi Arabia’s New King Probably Will Not Change Current Oil Policy (BBG)
  • Saudi King’s Death Clouds Already Tense Relationship With U.S. (WSJ)
  • Oil Pares Gains as New Saudi King Says Policies Stable (BBG)
  • Kuroda Says BOJ to Mull Fresh Options in Case of More Easing (BBG)
  • U.S. pulls more staff from Yemen embassy amid deepening crisis (Reuters)
  • Putin Said to Shrink Inner Circle as Hawks Beat Billionaires (BBG)
  • A Few Savvy Investors Had Swiss Central Bank Figured Out (WSJ)

Babson Capital 1987 Redux: "What Goes Up Must Come Down"

"most investors take a relatively short-term view and assume that what has happened most recently will continue. They fail to recognize that economic and market forces are always working to press companies (and whole industries) back toward their respective grooves... companies rarely perform way above the industry average or way below it indefinitely. There is a constant tendency to regress toward the mean..."