Less Demand, More Supply. Some Fear Wave Of Equity Sales As Buybacks Collapse
Those looking for reasons to be skeptical of the furious bounce in stocks off what seemed like a hopeless nadir late in March, don't have to search very far for confirmation bias.
For one thing, we're finding out what a "modern" depression feels (and looks) like. Inquisitive minds have pondered that prospect since 2008, when a complete collapse was averted by what, at the time, seemed like "extreme" policies (as it turns out, we were just starting to learn the meaning of "extreme" when it comes
C-suite stock option and stock awards will most likely continue. If those awards are no longer offset with corporate buybacks, the stock awards ( part of the C-suite compensation) becomes dilutive. Don’t even have to have a secondary offering to get a dilutive effect.
LOL
For some “fun with math”, I am going to recalculate some EPS numbers, assuming shares are still issued for compensation without offsetting buybacks.
Please let us know what you come up with. Thanks!
There is a mitigating factor – as the options are usually issued with a strike price equal to market when issued, a lot of options are out the money right now.
Unless the board of directors, in their wisdom, decides that is terribly unfair and votes to reset the strike prices lower. We’ll, at least for the more senior execs.
This happened quite a bit in 2009-10 and mostly went unnoticed.
Thanks for posting this. I’ve been slack jawed with amazement over how few are commenting on this.
Costco p/e will be 1000 by yr end
Every month 401K contribution indiscriminately flowed in the market like clockwork, a significant portion of that is going to drop off and some of the unemployed may even draw down their holdings.
“Ironically, rallies could be just the motivation cash-strapped companies need to sell shares, especially at a time when debt markets are likely to be unforgiving, the Fed’s efforts notwithstanding.”
More irony will be when (if it is possible) the self-same cash-strapped will, without rinsing or even washing, repete for the same reason.