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Huge New Prop under the Stock Market is a One-Time Affair

June 6, 2018

Huge New Prop under the Stock Market is a One-Time Affair

Crash insurance with an expiration date. But its working while it lasts.

In May, with great and perfectly orchestrated fanfare, US corporations announced plans to buy back $173.6 billion of their own shares sometime in the future. It was the largest monthly buyback announcement ever. And some of the announcements were expertly timed to overcome operational debacles.

The record amount of share repurchase announcements was due “in large part” to the changes in the corporate tax law, according to TrimTabs, which gathered the data.

This report was released when the digital ink was still drying on my musings about the FANGMAN stocks – Facebook, Amazon, Netflix, Google’s parent Alphabet, Microsoft, Apple, and Nvidia – that are so immensely overvalued that Goldman Sachs considered it necessary to come out with a note explaining that, based on fundamentals, they’re actually not in a bubble, which I had some fun pooh-pooing.

Some of the FANGMAN stocks are massive share buyback queens, such as Apple and Microsoft. Others are bottomless cash-sinkholes, such as junk-rated Netflix, which has to constantly raise new money, either by selling more shares or selling debt, so that it has more fuel to burn through, and it doesn’t have a dime to buy back its own shares.

That $173.6 billion in share repurchase plans includes the record-breaking mega-announcement from Apple that it would buy back $100 billion of its own shares. Here are the top five that account for $134.3 billion, or 77% of the total:

  • Apple: $100 billion
  • Micron: $10 billion
  • Qualcomm: $8.8 billion
  • Adobe: $8.0 billion
  • T-Mobile: $7.5 billion

To put that May total of $173.6 billion – these are just announcements of planned repurchases sometime in the future that may never fully transpire – into perspective: In Q1, total actual share buybacks reported by the S&P 500 companies amounted to $178 billion, an all-time record. That averages out to “only” $59.3 billion a month on average, compared to the announcements in May of $173.6 billion.

…click on the above link to read the rest of the article…

 

Stop the Fed Before it Kills Again

September 10, 2016

Stop the Fed Before it Kills Again 

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Why has the Fed created incentives for US corporations to loot their companies and drive them deeper into debt?

Despite four consecutive quarters of negative earnings, weak demand and anemic sales, US corporations continue to load up on debt, buy back their own shares and hand out cash to their shareholders that greatly exceeds the amount of profits they are currently taking in. According to the Wall Street Journal: “SandP 500 companies through the first two quarters of the year collectively returned 112% of their earnings through buybacks and dividends.”

You read that right, US corporations are presently giving back more than they are taking in, which is the moral equivalent of devouring one’s offspring.

These companies have all but abandoned the traditional practice of recycling earnings into factories, productivity or research and development. Instead, they’re engaged in a protracted liquidation process where the creditworthiness of their companies is used to borrow as much money as possible from the bond market which is then divvied up among insatiable CEOs and their shareholders. This destructive behavior can be traced back to the perennial low rates and easy money that the Fed has created to enhance capital accumulation during a period when the economy is still mired in stagnation. The widening chasm that has emerged between the uber-wealthy and everyone else since the end of the financial crisis in 2008, attests to the fact that the Fed’s plan has succeeded beyond anyone’s wildest imagination. The rich continue to get richer while the middle class drowns in an ocean of red ink. This is from CNBC:

“Corporate debt is projected to swell over the next several years, thanks to cheap money from global central banks, according to a report Wednesday that warns of a potential crisis from all that new, borrowed cash floating around.

…click on the above link to read the rest of the article…

This Is Why It’s Going to Get Even Tougher

October 23, 2015

This Is Why It’s Going to Get Even Tougher

The third quarter was tough for US corporations. Worse than the prior two quarters. They got waylaid by weak global demand and lack of pricing power. The easiest way to increase revenues and profits is to raise prices, so via inflation, but that strategy isn’t working when consumers don’t have the additional income to pay for higher prices.

Then there’s the “strong dollar.” On Thursday, Draghi evoked more QE and even more negative deposit rates, which eviscerated the euro and made the dollar a heck of a lot stronger. And so many US corporations are now reporting declining revenues.

It isn’t just the energy sector. For the 142 non-energy companies that have reported Q3 earnings so far, revenues dropped 3.0% year-over-year, according to Moody’s Credit Markets Review and Outlook. Operating income of these non-energy companies fell 2.7%. In this environment, companies try to maintain their bottom line by cutting costs.

“Results such as these weigh against expecting much of a pick-up by either hiring activity or capital expenditures,” Moody’s warns gloomily. Both have been dreary recently.

Cheap money is no longer readily available to riskier borrowers. In the third quarter, bond issuance by junk-rated companies plunged 38% from a year ago. Yields rose as the spread between high-yield bonds and Treasuries soared. And in October, according to S&P Capital IQ’s LCD, it has been even worse: just seven junk-bond deals through Thursday, for a measly total of $3.7 billion.

Leveraged loans are in a similar quandary. These loans issued by junk-rated companies, often for special dividends to their private equity owners or for M&A, are so risky for banks that regulators have been cracking down on them for two years. Banks usually sell them, either directly to funds or repackaged as Collateralized Loan Obligations (CLO). But during the Financial Crisis, banks got stuck with them. And now leveraged loan issuance is petering out.

…click on the above link to read the rest of the article…

Corporate America’s Millstone of Too Much Cash

April 24, 2015

Corporate America’s Millstone of Too Much Cash

Corporate America is flush with cash. Amazing amounts of cash.

According to research house FactSet, the combined cash balances of just the 500 companies in the S&P 500 is sitting at a record $1.4 trillion.

That’s a mountain of cash, but here’s some perspective on just how much money we’re talking about. $1.4 trillion is enough money to buy all the shares of Berkshire Hathaway… and Facebook… and Apple… and still have money left over.

That amount increases to almost $2 trillion if you expand the universe to include all publicly traded stocks.

A publicly traded company has five options when it comes to deploying that cash:

  1. Pay down debt
  2. Buy other companies
  3. Pay out dividends
  4. Buy back its own shares
  5. Let it sit in the bank and earn interest

The last option—let it sit in the bank and earn interest—isn’t very attractive in this day and age of zero interest rates, and most companies with gigantic cash hoards have already paid down most, if not all, of their debt, so the only viable choices are numbers 2, 3, and 4.

 

…click on the above link to read the rest of the article…

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