One who intends to leave others better off for his having existed.

5/27/14

"With the Fed having tapered its liquidity injections into the market from $85 billion to "only" $45 billion per month, ...many are asking themselves: who is buying? Here may be the answer."


http://www.zerohedge.com/news/2014-05-27/here-mystery-and-completely-indiscriminate-buyer-stocks-first-quarter
"According to the most recent CapitalIQ data, the single biggest buyer of stocks in the first quarter were none other than the companies of the S&P500 itself, which cumulatively repurchased $160 billion of their own stock in the first quarter.

Should the Q1 pace of buybacks persist into Q2 which has just one month left before it too enters the history books, the Last Twelve Months period as of June 30, 2014 will be the greatest annual buyback tally in market history.

...companies, who are  buying back their own stock to reduce their outstanding stock float have [very little] cost considerations: if the corner office [thinks] sales and Net Income (not EPS) will be weak in the quarter, they [may and probably do] tell their favorite broker to purchase $X billion of their shares with [little] regard for price: the [assumed] prerogative is to reduce the amount of shares outstanding and make the S in EPS lower, thus boosting the overall fraction in order to beat estimates for one more quarter.

Compounding this indiscriminate buying is that ever more companies ...are forced to issue debt in order to fund their repurchases. So [if] the cash flow statement merely acts as a pass-through vehicle and under Zero Interest Rate Policy companies with [relatively poor] balance sheets [can be] rewarded the actual risk of [what looks like] mispricing buyback entry points is borne by the bond buyer who in chasing yield (with other people's money) serves as [a large chunk of] the funding source for these buybacks.

...[many] corporate CEOs and CFOs [may] care less if your friendly Wall Street broker uses the repurchase allocation to buybacks at all time highs.

...since a vast majority of executive compensation agreements are tied to company stock "performance" C-suites are perversely happy if their own corporate cash is used to buy the stock near or at all time highs: after all management year end bonus will simply benefit that much more, while [most likely] keeping activist investors delighted.

So the next time someone asks who keeps on buying despite all the negative newsflow, despite [debt] yields sliding ever lower despite relentless broken-record pleas that a "recovery is just around the corner", and with volume near all time lows [pointing to] peak complacency... now you [may] know.

...there is no such thing as a free lunch, bought with stock buybacks or otherwise. Contrary to all the lies you may have heard, corporate debt - both total and net - is now at an all time high."

http://www.zerohedge.com/news/2014-05-27/here-mystery-and-completely-indiscriminate-buyer-stocks-first-quarter


Finally, [many of] these are the companies that are the most aggressive repurchasers of their own stock, or said otherwise, the companies that have [little] organic use for the cash and [may] have [few] ideas how to grow their top and bottom line or what capital projects to invest their excess capital, they [look like they are using] buybacks as an option to give the impression of "growth."

No comments: