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Mon May 23, 2016, 12:08 PM

Share Buybacks Now Bought Out, American Enterprise in Decline

Share Buybacks Now Bought Out, American Enterprise in Decline
by David Haggith • May 22, 2016

[font color="blue"]“The practice is even starting to reek of death to market bulls.”[/font]

By David Haggith, The Great Recession Blog:

I have pointed out in previous articles how most of the growth in stocks over the past few years has been due to stock share buybacks. Without this hideous (and at one time illegal) practice, there would have been no bull market over the last few years.

That’s right. Research from no other place than Wall Street, itself, indicates that almost all of the returns since 2009 have been due to stock share buybacks!

Liz Ann Sonders, chief investment strategist and perma-bull at Charles Schwab, recently acknowledged that “… there has not been a dollar added to the U.S. stock market since the end of the financial crisis by retail investors and pension funds….” Since every buyer has a seller (and vice versa), what group or groups had enough of a buying presence to push the S&P 500 14.2% off of the February closing lows? Corporations. (Seeking Alpha)

Most people assume what has kept the market afloat this year after sinking 11% at the start of the year was a mixture of better news out of China, oil prices stabilizing, and indications that the Fed won’t raise rates as much as thought. But the real thing bouying the market could be something else: Stock buybacks…. The stock buybacks come at a time when major investors including individuals, foreign investors, and pension funds have been selling off their shares, according to a note from Goldman Sachs, amid market volatility and weak oil prices. (Fortune)

Stock share buybacks may be winding down

But you cannot do share buybacks forever. Companies have been using profits and loading up on debt to make these share buybacks for so long that the law of diminishing returns is kicking in here, too.

First, it is kicking in because companies are nearing the end of their capacity to keep eating themselves. Earnings have been falling while debt has been stacking up, and so the capacity just isn’t there any more. (And I mean even the doctored earnings — as almost all major corporations have moved away from GAAP reporting policies — have been falling badly.) ...........(more)


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Reply Share Buybacks Now Bought Out, American Enterprise in Decline (Original post)
marmar May 2016 OP
Warpy May 2016 #1

Response to marmar (Original post)

Mon May 23, 2016, 03:19 PM

1. Maybe, but authorization was still on my proxies this year

and it was pretty universal. CEOs still think they're going to pump that stock price by buybacks. That has just about run its course, too, since the market is inflated as it's going to get and "pump and dump" is no longer profitable.

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