We have now done the math and compiled the Q2 earnings for the S&P 500 and we can indeed confirm that (at least in the second quarter) the buyback part is not only over but has ended with a thud, with the total notional amount of buybacks completed in Q2 plunging by 27% in Q2 to "only" $117 billion - the lowest since Q1 of 2013!
With the Federal Reserve ending their support of the markets by October, and as discussed yesterday, corporate share buybacks on the decline; two of the biggest supports of asset prices over the last couple of years is fading. What does this mean for investors going forward?
"two landmark firsts have occurred only recently, with the S&P500 breaking above 2,000 and the 10y bund yield breaking below 1%. Our Ice Age thesis has long called for sub-1% bond yields and I see this extending to the US and UK in due course. It is the equity markets where I have been consistently surprised. QE has been an essential driver for the equity market, providing the fuel for the heavy corporate bond issuance being used for share buybacks. Companies themselves have been the only substantive buyers of equity, but the most recent data suggests that this party is over and as profits also stall out, the equity market is now running on fumes." - Albert Edwards
"Excess credit creation is at the heart of much of China’s GDP growth, and why this means that China must choose between a sharp slowdown in GDP growth as credit is constrained, or a continued unsustainable increase in debt. The key point is that we cannot simply put the bad debt behind us once the economy is “reformed” and project growth as if nothing happened. Earlier losses are still unrecognized and hidden in the country’s various balance sheets."
Here are the most notable news updates from overnight events in Iraq.
What is really going on in Iraq?
The relationship between high-yield credit spreads (the 'cost' of protecting the most equity-like of the credit-risky bond spectrum) and VIX (the 'cost' of protecting equities) tend to have a very stable and consistently correlated relationship driven by clear arbitrages between the two asset classes and corporate finance causation. Last July, VIX futures plunged while credit spreads remained less impressed... that ended badly for the penny-in-front-of-the-steamroller crowd who saw VIX spike back to credit's reality. May 2014 - as the chart below shows - is exhibiting the same kind of disconnect and VIX traders and credit market participants are concerned.
Nearly all of us……well, all except our benevolent dictators, appear to be permanently caught in the first four stages of the Kubler-Ross black hole of loss and grief........
- Ukraine forces kill up to five rebels, Putin warns of consequences (Reuters)
- Obama to Russia: More sanctions are 'teed up' (AP)
- Vienna Banks Bemoan Russia Sanctions Testing Cold War Neutrality (BBG)
- GE’s $57 Billion Cash Overseas Said to Fuel Alstom Deal (BBG)
- GM posts lower first-quarter profit after recall costs (Reuters)
- Apple Stock Split Removes Obstacle to Inclusion in Dow (BBG)
- U.S. regulators to propose new net neutrality rules in May (Reuters)
- Q1 revenue $2.5 billion, beats expectations of $2.36 billion
- Q1 revenue from advertising $2.27 billion
- Q1 EPS $0.34, beat expectations of $0.24
- Free cash flow - Free cash flow for the first quarter of 2014 was $922 million.
- Capital expenditures - Capital expenditures for the first quarter of 2014 were $363 million.
- Cash and marketable securities - Cash and marketable securities were $12.63 billion at the end of the first quarter of 2014.
- Monthly active users (MAUs) were 1.28 billion as of March 31, 2014, an increase of 15% year-over-year. Unclear how many of these are bots originating out of Egypt and India.
So, they might be on the opposite side of the Atlantic Ocean, but the Europeans and the Americans have one thing very much in common.
As I step ever closer to the advent of a new monetary system...
When the Taper Talk sign is on, beware. The sign is now brightly lit.
In the 21st century economy, if you want to stay employed, seek out a field that is ascending rather than declining. Most people understand that technology is fundamentally changing the nature of work and employment. These changes are also having a profound effect on the state of the US economy...
Accounting for “Sunk costs” – money already spent that cannot be retrieved – is likely both the best understood and most widely ignored bit of wisdom on Wall Street and beyond. As ConvergEx's Nick Colas notes, whether you buy a stock or make a corporate investment or purchase a theater ticket, that money is gone forever. If the investment doesn’t pan out or you hear that the play stinks, you are better off cutting your losses or, in the case of the ticket, just going out to dinner. But, Colas quickly reminds us, that is way easier said than done, as apparently humans are generally hard wired to fall further in love with whatever they have already chosen. The single largest sunk investment of recent decades is the Federal Reserve’s bond buying program, with $2.4 trillion in QE 1, 2, and 3 on the line. Tomorrow, we’ll get a another glimpse of how well the Federal Open Market Committee knows its sunk cost theory – and what they know about Friday’s jobs number.