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Supply And Demand, Buybacks And Robots
This isn't well understood among a lot of "everyday investors" (whatever that means), but stock pric
“What could go wrong?” A TACO Bell crunch?
Fordo is not the only “go wrong” reference. Looking at 90 day data – which seems to be the rage – tariff-man Trump and his advisor mentally unbalanced Navarro (the modern day Grigori Rasputin) are an equal force driving the U.S. to this national (global) catastrophe.
By the way H-man. That is by far the best analysis that I have seen of the equity maket’s current positioning. The wall is very close and our systems are very fast and on a hair trigger,
I’ve finally started to see commentaries which touch on the market internals (as I call them). It helps to explain the resilience of share prices even in the face of questionable earnings growth potential and a suboptimal political landscape.
It surprised me how few readers cared to comment on this well-presented analysis.
I looked up the amount of gross proceeds from IPOs, in order to compare gross proceeds to buybacks for publicly held companies in the US. I don’t know if I found the correct data (I attached what I found- see aggregate proceeds in the last column of Table 1), however, if this is correct, then the aggregate proceeds for 1980- 2024 were $1.2T. 2020-2024 were each $119B, $7B, $12B and $20B, respectively.
So buybacks appear to be exponentially higher than gross proceeds to issuers. Considering the amount of USDs created during the period 2020-2025ytd, this further confirms that the supply is shrinking vs. increased demand due to increased production of USDs.
No wonder demand is far outpacing supply and PEs are increasing. Buy and hold with this dynamic seems to be a “no brainer”.
https://site.warrington.ufl.edu/ritter/files/IPO-Statistics.pdf
In our new world, corporate earnings and, especially, cash flow are only relevant as suppliers the of funds needed to buy back shares.
Only a few years ago, interest rates were so low that companies did not need to reduce buybacks if they could access the credit markets. Borrowing to fund buybacks often made sense, at least to corporate executives.
With borrowing rates so much higher now, I wonder if earnings will become more relevant in this context? It might reduce the cushion we’ve seen when stock prices drop if the trigger was something which threatens earnings and cashflow growth.
Isn’t protecting corporate earnings one of the Federal Reserve’s mandates? 🙂