You need a PLUS account to view this content. Try one month of PLUS for FREE.
Already have an account? log in
Do US Stocks Have A Demand Problem?
If a string of US bank failures and the near collapse of Credit Suisse were supposed to constitute a "last straw" moment for stocks which, more than a year into the second bear market of the 2020s, still haven't suffered a proper crash, the memo got lost in the mail.
The Nasdaq 100 is coming off its best quarter in 11 years, and global equities rose in six of March's last seven sessions to finish the month with a near 3% gain. That wiped away February's losses, leaving January's blockbuster ral
Nobody should blame the fall in buybacks on rates. There are some really smart people serving as CFOs of our major companies, so they should know that there is no actual bottom line return that arises from buying back one’s own stock, even if they are loathe to admit this knowledge. Further, when bought with borrowed capital at inflated prices, the use of shareholder capital in this way results in an opportunity loss, unlikely to be recovered … a reason I don’t buy stocks. Also, to assume that firms are not borrowing money to buy back their own stock proves they know what a bad bargain is struck with such financial engineering. These highly smart people also don’t seem to remember their basic MBA corporate finance course very well because if they did, they would know that the use of a firm’s assets, even for CAPEX, involves incurring a cost of equity capital. If these highly smart people hadn’t wasted so much of their debt capacity buying back their stock, with no return to the bottom line, they would awaken to the fact that the cost of equity capital (you, know, one’s own funds) is always higher than the cost of debt, so even though these folks should know better, if they could borrow for CAPEX, etc., it would still be cheaper than using internal equity. The thing is, even MBAs from HBS don’t tend to pay attention to the cost of equity (it is after all, largely an opportunity cost) because it is seemingly a non-cash expense, unlike interest, so they always tend to think equity capital has no cost, these ultra-high thinking (bad) decision makers. BTW, this was the subject of my masters thesis back in the day. Got a nice grade on that one.