This will end very badly.
According to The Economist, American companies have bought over $500 billion worth of their own stock in the last 12 months. We haven’t seen this kind of pace in share repurchases since 2007.
We all remember what followed soon after this buyback craze. Indeed, one could easily argue that the buyback craze helped create the bubble in stocks in 2007.
Today, what’s particularly disturbing is the fact that many corporations are issuing debt to do this.
This is called leveraging up. And it’s telling that companies are doing it to boost stock prices at a time when they’re not expanding cap ex or payroll.
It’s often believed that companies buy their own shares because the shares are undervalued… but the flip side of this is that companies also do it because they don’t have anything better to do with the money.
Here’s a random question… if corporate executives believe so strongly that their companies are trading at attractive prices… why are almost NONE of them buying stock personally?
American companies have seldom spent more money than they are now buying back shares. The same can’t be said for their executives.
A total of 7,181 insiders bought their own stock this year through Sept. 12 and 23,323 sold shares, according to data compiled by Bloomberg and Washington Service. The ratio of buys to sells is near the lowest since 2000. At the same time, corporate repurchases reached $275 billion in the first half of the year, the second busiest since S&P Dow Jones Indices began tracking the data in 1998.
So corporate insiders are spending tens of billions of dollars in corporate cash to buyback shares… but are personally dumping their stakes in their companies at a pace not seen since 2000?
Put another way, why are corporate insiders selling the farm when it comes to their own money… but spending corporate cash like drunken sailors?
This is just another data point indicating that we’re back in a 2000 or 2007-era mania in stocks. Eventually the bubble will pop, just as the ones in 2000 and 2007 did. At that point we’re due for another crisis.
This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://phoenixcapitalmarketing.com/special-reports.html.
This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.
Phoenix Capital Research
Our Actively Updated Forum: