U.S. corporations announced just $244 billion in planned buybacks during the first four months of 2016. That was a hefty 38% plunge from a year earlier, the biggest drop since 2009, according to Bloomberg.
Companies generally only buy around 81% of the shares they pledge to. So the actual pace of buybacks will likely fall below $600 billion this year – the first time that has happened in three years. Falling profits, less cooperative debt markets, and management conservatism are all contributing to the buyback bust.
Why does that matter for the broad market? Because companies have been the biggest equity buyers over the past several years, snapping up more than $2 trillion of their own shares since 2009. Without that buying power to prop them up, stocks look vulnerable.
|Falling profits, less cooperative debt markets, and management conservatism are all contributing to the buyback bust.|
What’s more, hedge funds, wealthy investors, and other individuals have been net sellers of shares for the past 15 consecutive weeks, according to Bank of America (BAC). That’s the longest streak on record. And to top it all off, more companies are cutting dividends now than at any time in the last seven years.
If you go back to my bubble list, published most recently in early April, you can see that I warned about debt-funded stock buybacks. I also listed several other asset bubbles, including tech unicorns and commercial real estate, which are unsustainable and bound to pop. My work suggests that process is already underway, so be sure you get your capital out of harm’s way.
|“Be sure you get your capital out of harm’s way.”|
In the meantime, I’d love to hear from you about the buyback bust. Do you think it will have a significant impact on stocks? Why or why not? Why do you think other classes of investors, from hedge funds to wealthy individuals, are consistently yanking money out of stocks? Use the comment section to add your voice to the mix.
What is the bond market telling us about the state of the economy? Should we be concerned about lackluster growth? Several of you weighed in on those topics over the weekend.
Reader $1,000 Gold said: “The bond trade is getting awfully crowded. Once everybody gets in, you know what happens next. I’ve sworn off leveraged funds, but that TMV ticker (the Direxion Daily 20 Year Plus Treasury Bear 3X Shares) is tempting me daily.”
But Reader Gordon said he’s plenty concerned about the economy, and that should continue to support bond prices. His view: “Governments should be charged with racketeering the way they are throwing false numbers around, mostly inflated. Banks are really in trouble with all these low interest rates. And let’s see how car sales hold up in the future with manufacturers almost daily being found to be fudging their performance figures.”
Reader Justin added: “With so many weak and even failing retailers, it looks like a recession. Remember the ‘soft-landing’ rhetoric in the early ’90s, which the government finally admitted was a recession five or so years later? Therefore, I have a hard time believing government ‘state of the economy’ statements that have not undergone five years of review.”
Lastly, Reader Mike S. said: “The only way to clean up this Federal Reserve bubble is to let the economy bust. We can then start at zero and rebuild the economy the way it should be as a free market.”
Thanks for sharing. And if you didn’t have a chance to add your thoughts to the mix yet, feel free to hit up the comment section below.
Hong Kong became the latest market to suffer a “Flash Crash” overnight, with markets plunging over 2 percentage points in about 2 minutes out of nowhere in the mid-afternoon. Investors and traders couldn’t seem to explain the move in the Hang Seng China Enterprises Index, where so-called “H-shares” that track Chinese equities trade.
Many investors have gotten disillusioned by the losses in big technology names like IBM (IBM) and Apple (AAPL). But not Warren Buffett, apparently. His Berkshire Hathaway investment firm increased its stake in IBM, and added a new 9.8 million-share position in Apple. That’s worth around $900 million at recent prices
Like shopping at Amazon.com (AMZN)? Then you’re in luck, because you’ll soon be able to buy the company’s own private-label products. The Internet retailer will start selling food, vitamins, and household items under brand names like Happy Belly and Wickedly Prime in the next few weeks.
Drug giant Pfizer (PFE) is buying Anacor Pharmaceuticals (ANAC) for $5.2 billion, a move designed to add eczema and toenail-fungus treatments to its collection of products. The price represented a 55% premium to where Anacor closed on Friday.
What do you think of Buffett’s latest moves in the technology sector? Good or bad investments? How about Amazon’s private-label brand foray, or the mini-Flash Crash in Hong Kong? Let me hear about it in the discussion section below.
Until next time,