Just Two Words: ‘Inflation’ And ‘Buybacks’

Just Two Words: ‘Inflation’ And ‘Buybacks’

If you were wondering what corporate management teams discussed on calls during reporting season... Wait, let me start over. You probably weren't "wondering." Even passive market observers (often synonymous with passive investors) could likely make a list of hot topics for management in the current environment. There's no mystery when it comes to what's on the minds of the C-suite. And yet, it's worth recapping now that some 85% of S&P 500 market cap has reported. According to Goldman's "
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5 thoughts on “Just Two Words: ‘Inflation’ And ‘Buybacks’

  1. Thanks for posting the buybacks chart.

    Individual investors and “risk parity” funds stepped up last year when many companies suspended buybacks. A neat handoff which supported stocks. Recently it’s been suggested that smaller investors are tapped out and that the markets may flat line as a result. But the resurgence of buybacks should more than offset that. It may be like 2011-2019 again.

    If so, what does that mean for the rotation to small caps and even cyclicals? Many of those firms do not have the ammo to spend on large-scale buybacks.

  2. I am not sure about inflation.
    Corporations will be able to continue to reduce space needs in the future, as leases end and come up for renewal, through a permanent trend to hybrid work from home/in the office. Retail will continue to trend to online. Entry level restaurant and other service jobs will trend toward “screens” and online booking/ordering. Even home building, except for custom home building, will transition to “factory built”. When the home arrives to the lot, it is prewired and plumbed, cabinets, flooring, walls are already installed- after site work, the home goes together in 1-2 weeks, some even less. This is all disinflationary. Our workforce, aka our citizens, will be able to support a much larger population through immigration. I am guessing that for at least the next 50 years, if the global population had a choice of immigrating to China or the USA, they would choose USA.
    After that, probably before, I will be dead anyway. I am pretty healthy, tho……

  3. In the last two weeks I have been renewing some of my summer casual clothes. What I noticed in most of the stores I visited is that compared to 2019, the prices of shorts, tee shirts, polo shirts and similar attire are up 50-75 % and nothing was on sale. This year’s shopping therapy session was very expensive. I wasn’t going to Walmart where prices are still fairly low, but for many items at WMT an increase of a couple dollars can be 15% so not sure how it all averages out. Food and clothes, at least, anecdotally seem higher. Same with restaurants. Feels kind of like shopping in the black market.

  4. I recall $8 corn, many years back, and where it went…. I’m in the “transient” camp; I suspect many commodities are in lumber’s situation. That business is now replete with calls that “the logs are out there” and will ultimately show up for the game. $1670 lumber suddenly follows a 30-YEAR channel between $200-$450, a range that survived a variety of economic cycles, crises, political epochs, McMansions, pine beetles, and deforestation. Right now, the early Covid factors and mistaken responses are in remediation as industry, rail, and truck transport slowly respond. I suspect Jan futures may tell the tale of the peak. By 2022, industry will demonstrate very-human “mean reversion” in mistakes: over-reserving rail cars, double-purchasing, unneeded capacity restarts, etc. Which, by the way, is one of the reasons I think the un-bubble in housing will carry on, moderated. Cost reductions and home price rationalization will drive consumer home sales and builder margins. Win-win all around, unless you’re a tree.

  5. Arguments for calling the current inflation surge, “transitory”, doesn’t seem to go much farther than, “pent-up demand will soon be satisfied”. And don’t pay attention to supply chain disruption… it’ll get sorted out (eventually). I’m not convinced the latter can be dismissed as temporary, at least in the context of inflation. The longer prices are elevated, the less likely they’ll return fully to the prior levels.

    The self-perpetuating nature of inflation underlies the risk of being wrong about it being transitory.

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