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Huge New Prop under the Stock Market is a One-Time Affair

By Feux Follets following x   2018 Jun 6, 4:00am 136 views   3 comments   watch   sfw   quote     share    


Crash insurance with an expiration date. But its working while it lasts.

In May, with great and perfectly orchestrated fanfare, US corporations announced plans to buy back $173.6 billion of their own shares sometime in the future. It was the largest monthly buyback announcement ever. And some of the announcements were expertly timed to overcome operational debacles.

The record amount of share repurchase announcements was due “in large part” to the changes in the corporate tax law, according to TrimTabs, which gathered the data.

This report was released when the digital ink was still drying on my musings about the FANGMAN stocks – Facebook, Amazon, Netflix, Google’s parent Alphabet, Microsoft, Apple, and Nvidia – that are so immensely overvalued that Goldman Sachs considered it necessary to come out with a note explaining that, based on fundamentals, they’re actually not in a bubble, which I had some fun pooh-pooing.

Some of the FANGMAN stocks are massive share buyback queens, such as Apple and Microsoft. Others are bottomless cash-sinkholes, such as junk-rated Netflix, which has to constantly raise new money, either by selling more shares or selling debt, so that it has more fuel to burn through, and it doesn’t have a dime to buy back its own shares.

That $173.6 billion in share repurchase plans includes the record-braking mega-announcement from Apple that it would buy back $100 billion of its own shares. Here are the top five that account for $134.3 billion, or 77% of the total:

•Apple: $100 billion
•Micron: $10 billion
•Qualcomm: $8.8 billion
•Adobe: $8.0 billion
•T-Mobile: $7.5 billion

To put that May total of $173.6 billion – these are just announcements of planned repurchases sometime in the future that may never fully transpire – into perspective: In Q1, total actual share buybacks reported by the S&P 500 companies amounted to $178 billion, an all-time record. That averages out to “only” $59.3 billion a month on average, compared to the announcements in May of $173.6 billion.

This chart shows the actual share buybacks as reported by companies in their quarterly earnings reports. Q1 broke all records, and as the May announcement indicates, that record will likely be broken soon:



More: https://wolfstreet.com/2018/06/05/what-props-up-the-stock-market/

#StockMarket #Buybacks #TheMarketAlwaysGoesUp
1   Feux Follets   ignore (0)   2018 Jun 6, 4:04am   ↑ like (0)   ↓ dislike (0)   quote        

FANGMAN Stocks Are Not a Bubble, Pleads Goldman Sachs - This time, it’s different, say the strategists

In the bewildering wilderness of the most hyped Wall Street acronyms, we’re going to stick to FANGMAN:

Facebook

Amazon

Netflix

Google’s - Alphabet

Microsoft

Apple

Nvidia

for the special moment. And the special moment is that the Nasdaq, or more loosely “tech stocks,” closed today at a new high.

But don’t worry. With regards to tech stocks, no matter how high they’ve soared, there is no bubble, based, believe it or not, on fundamentals, Goldman Sachs strategist Peter Oppenheimer and Guillaume Jaisson pleaded in a note, cited by Bloomberg.

And the fun is going to continue, the said. And it’s different this time:

“Unlike the technology mania of the 1990s, most of this success can be explained by strong fundamentals, revenues and earnings rather than speculation about the future.”

“Given that valuations in aggregate are not very stretched, we do not expect the dominant size and contribution of returns in stock markets to end any time soon.”

“Leading tech companies today have become very large in terms of market value, but that reflects the significant growth of technology spending and its ability to displace other more traditional capex spending.”

So tech will continue to dominate, they argue, as everyone will have to buy it, including retailers as they try to escape the brick-and-mortar meltdown by shifting to e-commerce. And then there’s the whole huge promise of AI. They add:

“This ‘snow balling’ effect is similar to what was experienced during the industrial revolution where one technology led to another and caused traditional industries to spend more on technology to survive.”

Yes, Y2K comes to mind.

So let’s take a look at the non-bubble in the FANGMAN stocks. Here are their basic data as of Monday evening: Market capitalization, price-earnings ratio (P/E Ratio), annual revenue growth, annual revenues for the last full year reported, and price-to-sales ratio.

Of the seven companies, junk-rated Netflix is a tried-and-true mechanically effective cash-burn machine. But no problem. Given the company’s market capitalization, the junk-bond market, which is in peak-bubble mode, is eager to feed it huge amounts of cash.

More Including Chart: https://wolfstreet.com/2018/06/05/fangman-stocks-are-not-a-bubble-pleads-goldman-sachs/
2   Hassan_Rouhani   ignore (2)   2018 Jun 6, 7:07am   ↑ like (0)   ↓ dislike (0)   quote        

Where is the fucking expiration date?
3   Feux Follets   ignore (0)   2018 Jun 12, 2:45am   ↑ like (0)   ↓ dislike (0)   quote        

Finally: SEC Frets about Share Buybacks, “Torrent of Corporate Trading Dominating the Market” and “Short-Term Financial Engineering”

A study by the SEC of 385 recent share-buyback announcements — this is when companies announce how much money they will spend in the future on buying back their own shares, but before they actually begin buying them — found:

•Share-buyback announcements led to “abnormal returns” in the share price over the next 30 days.

•Executives used this share price surge to cash out.

“In fact, twice as many companies have insiders selling in the eight days after a buyback announcement as sell on an ordinary day. So right after the company tells the market that the stock is cheap, executives overwhelmingly decide to sell,” explained SEC Commissioner Robert Jackson Jr. – appointed by President Trump and sworn in earlier this year – in a speech today. He went on:

And, in the process, executives take a lot of cash off the table. On average, in the days before a buyback announcement, executives trade in relatively small amounts—less than $100,000 worth. But during the eight days following a buyback announcement, executives on average sell more than $500,000 worth of stock each day—a fivefold increase. Thus, executives personally capture the benefit of the short-term stock-price pop created by the buyback announcement:

“This trading is not necessarily illegal,” he added. “But it is troubling, because it is yet another piece of evidence that executives are spending more time on short-term stock trading than long-term value creation.”

The surge in buybacks is largely due to the new corporate tax law. In the first quarter, companies actually repurchased an all-time-record $178 billion of their own shares. In terms of announcements of future share buybacks, May set an all-time record of $174 billion – in just one month! So this business is heating up.

SEC Commissioner Jackson pointed at the dark underbelly of these buybacks:

On too many occasions, companies doing buybacks have failed to make the long-term investments in innovation or their workforce that our economy so badly needs.

And, because we at the SEC have not reviewed our rules governing stock buybacks in over a decade, I worry whether these rules can protect investors, workers, and communities from the torrent of corporate trading dominating today’s markets.

He added:

Executives often claim that a buyback is the right long-term strategy for the company, and they’re not always wrong. But if that’s the case, they should want to hold the stock over the long run, not cash it out once a buyback is announced. If corporate managers believe that buybacks are best for the company, its workers, and its community, they should put their money where their mouth is.

He called on his colleagues at the SEC “to update our rules to limit executives from using stock buybacks to cash out from America’s companies.”

https://wolfstreet.com/2018/06/11/sec-frets-about-share-buybacks-torrent-of-corporate-trading-dominating-todays-market-and-short-term-financial-engineering/

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