Get the best daily market and macroeconomic commentary anywhere for less than $7 per month.
Already have an account? log in
It’s (Still) About The Buybacks
Some argue that given the notoriously "flow-less" character of the YTD rally in equities, the V-shaped rebound off the "Christmas Eve massacre" lows can be explained in part by buybacks hitting in a low-liquidity environment.
Just as a lack of market depth can exaggerate moves on the way down, low liquidity can also lead to outsized move on the upside, as we learned late last year, when rebalancing flows catalyzed a sharp surge coming off the Christmas holiday.
“Given liquidity, it is plausi
I always seem to hear these discussions of buybacks in the context of the market as a whole. There are plenty of companies out there that are doing no buybacks, or who have made minimal purchases. I think many of those companies slumped in December, have since recovered, and are now seem overvalued.
Are there any decent studies out there comparing stock price performance by the firms that have been actively pursuing buybacks and those who have not?
I think you are missing a few fundamental points in this commentary (by the way I like your writing and often agree with you). Earnings growth has slowed and will continue to slow – and many of the S&P companies that have reported earnings thus far this quarter have mentioned that their net margins are getting squeezed either through increased labor costs or rising input costs or both (and the ridiculously high inventories that we saw in the GDP number yesterday reflecting many institutions jacking up inventories in fear of more tariffs in the trade war and now having to work off those inventories (resulting in what will be weak gdp growth the rest of the year). And the easy money has already been repatriated from offshore through the one time tax breaks they got in 2018. WIth the threat of a strong global economic slowdown (and the inevitable recession), margins getting squeezed, significantly slowing revenue growth and remaining overseas assets in the form of illiquid assets that are not easily repatriated AND the fact that many of these companies have borrowed with BBB debt to finance their repurchase plans (one of the biggest Ponzi schemes in history) coupled with the stronger democratic wave to stop buybacks and also to have some profits redistributed to the actual employees who work for the greedy people who run these big companies, The buyback party is going to morph into a a small get together soon The party is over. What happens when some of these companies cant cover the debt service on what they borrowed to buy shares back and have to start issuing new shares to cover the debt. The buyback binge is dying and will be over soon. Any responsible CFO/CEO will be keeping remaining cash in reserve to prepare for the downturn No more big buybacks coming sorry to say.
2018 buybacks were up 54% but S&P500 was down 6%. That suggests there are limits to buybacks driving the index higher.
I also like your writing Walt and enjoy your outlook and commentary. However, this is just Goldman and the other brokers talking their book. All that business – was it $800bn – this year of easy business. Mmmmm! Time to throw more money at politicians to manipulate the situation.