QE has been an essential driver for the equity market, providing the fuel for the heavy corporate bond issuance being used for share buybacks. Companies themselves have been the only substantive buyers of equity, but the most recent data suggests that this party is over and as profits also stall out, the equity market is now running on fumes."
We have now done the math and compiled the Q2 earnings for the S&P 500 and we can indeed confirm that (at least in the second quarter) the buyback part is not only over but has ended with a thud, with the total notional amount of buybacks completed in Q2 plunging by 27% in Q2 to "only" $117 billion - the lowest since Q1 of 2013!
This is what Edwards said in his latest note:
In other words, while QE has been the permissive factor enabling companies to engage in zero cost debt-funded stock repurchases, it was corporate CFOs and Treasurers who, in lieu of traditional retail and institutional buyers, have been the marginal buyers of stocks in the tail end of the most ridiculous, rigged, and as CNBC likes to call it, "unloved" rally of all timeMuch has happened over the summer, but two landmark firsts have occurred only recently, with the S&P500 breaking above 2,000 and the 10y bund yield breaking below 1%. Our Ice Age thesis has long called for sub-1% bond yields and I see this extending to the US and UK in due course. It is the equity markets where I have been consistently surprised. QE has been an essential driver for the equity market, providing the fuel for the heavy corporate bond issuance being used for share buybacks. Companies themselves have been the only substantive buyers of equity, but the most recent data suggests that this party is over and as profits also stall out, the equity market is now running on fumes
For when the funding for corporate bond issuance stops (for whatever reason, i.e. QE ends), share buybacks also stop and one of the biggest drivers for the equity bull market is removed.
The equity bubble has disguised the mountain of net debt piling up on US corporate balance sheets (see charts below). This is hitting home now QE has ended. The end of the buyback bonanza may well prove to be decisive for this bubble. Indeed - is that a hissing I can hear?
2---Chart of the Day - US High Yield issuance and debt outstanding , macronomy
We often hear about strong balance sheets of US corporates and their "cash" levels as the second main driver (after the Fed) for the current low volatility environment. It is indeed the case but, one must not forget about the on-going massive releveraging taking place, notably to fund buybacks via debt issuance.
As long as cash flows and margins stay on current levels, the rising gross debt levels on balance sheets do not affect ratios such as Debt/Ebitda as per the below graph from the same UBS report:
- source UBS
But, should the US experience a strong economic slowdown, you have to remember that this high level of debt can back and haunt you, particularly in the High Yield segment as in the period 2002-2003
4--2---Piling on the leverage , Bloomberg
With more banks driving down the cost of borrowing, investors are loading up with debt. Loans now account for about 40 percent of the purchase price in transactions of more than $500 million, up from about 25 percent before the crisis, said Nicolas Lanel, managing director and European head of private capital advisory at Evercore in London. ...
If an investor buys a portfolio of leveraged-buyout funds at face value, using debt to fund about 40 percent of the purchase price, the return could be more than 1.6 times the original investment, compared with 1.3 without, said Thomas Liaudet, a partner in London at Campbell Lutyens, which advises investors on secondary transactions.
“The increase in returns is largely a result of the increase in leverage being put into transactions,” he said.
5---Dutch report into Ukraine jetliner disaster continues cover-up, wsws
not one word of anything reported regarding the fate of flight MH17 can be taken at face value. All of those involved in the investigation and its coverage have a vested interest in asserting Russia’s responsibility, at least indirectly, for the plane being shot down.....
The DSB does not address the absence of any satellite imagery or radar data, or any other evidence supplied by US intelligence agencies, which operate the most powerful global surveillance network. It is implausible, to say the least, to imagine that Washington’s vast apparatus was paying no attention to the war zone of eastern Ukraine, which is also a regular flight path for many commercial airline flights.
Moreover, the US was heading a 10-day NATO exercise in the adjacent Black Sea, which concluded the day MH17 was downed. This operation specifically involved commercial traffic monitoring with sophisticated electronic intelligence and “reaction to asymmetric threat warnings, anti-submarine warfare and artillery firing.”
In sharp contrast, following the bombing of Pan Am Flight 103 over Lockerbie, Scotland, in 1988, photographs of the area taken by a French satellite were delivered to the investigators within hours. The US Department of Defence and NASA also provided the investigation with high-resolution photographs from spy satellites.
The DSB’s report states that, in accordance with the stated “sole objective” of “the prevention of similar accidents and incidents,” it does not “apportion blame or liability in respect of any party”—something that the capitalist media downplays or ignores.
The only basis on which the media can again repeat their assertions that pro-Russian separatists were responsible is the report’s statement that “The damage observed in the forward section of the aircraft appears to indicate that the aircraft was penetrated by a large number of high-energy objects from outside the aircraft” (emphasis added).
But the report never once identifies what it means by “high-energy objects.” It also claims that, even though enough of the wreckage was recovered to confirm that the aircraft appears to have been particularly badly hit above the level of the cockpit floor, DSB investigators supposedly failed to recover or study any of the objects that penetrated the plane....
The report as issued is equally compatible with radar and satellite data presented July 21 by the Russian military, indicating that a Ukrainian SU-25 fighter jet was in the immediate vicinity and ascending towards MH17 as it was shot down. Missiles and machinegun rounds fired by an SU-25 are also “high-energy objects.” This possibility has not been addressed, let alone refuted by Kiev, Washington or anyone else involved in the investigation.
On August 9, the Malaysian New Straits Times published an article effectively charging the Kiev regime with shooting down MH17. It stated that evidence from the crash site indicated that the plane was shot down by a Ukrainian fighter with a missile followed by heavy machine gun fire. The report was subsequently ignored by the world’s media
6--Why Big Business like high unemployment, NC
Michal Kalecki’s 1943 Essay on Politics and Ideology gave a clear and cogent explanation of why the investing classes are opposed to full employment policies....
The dislike of business leaders for a government spending policy grows even more acute when they come to consider the objects on which the money would be spent: public investment and subsidizing mass consumption.
The economic principles of government intervention require that public investment should be confined to objects which do not compete with the equipment of private business (e.g. hospitals, schools, highways). Otherwise the profitability of private investment might be impaired, ...
One might therefore expect business leaders and their experts to be more in favour of subsidising mass consumption (by means of family allowances, subsidies to keep down the prices of necessities, etc.) than of public investment; for by subsidizing consumption the government would not be embarking on any sort of enterprise. In practice, however, this is not the case. Indeed, subsidizing mass consumption is much more violently opposed by these experts than public investment. For here a moral principle of the highest importance is at stake. The fundamentals of capitalist ethics require that ‘you shall earn your bread in sweat’ — unless you happen to have private means.
4. We have considered the political reasons for the opposition to the policy of creating employment by government spending.....‘discipline in the factories’ and ‘political stability’ are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the ‘normal’ capitalist system.
It is vital to understand that high unemployment and low wage growth are solvable problems. But powerful and well placed people believe it is in their interest to keep them unsolved. It will take considerable pressure to change their minds.
7--Time to end the bloody Ukraine conflict, Katrina vanden Heuvel, WA Post
Logic aside,” writes John Mearsheimer in Foreign Affairs, “Russian leaders have told their Western counterparts on many occasions that they consider NATO expansion into Georgia and Ukraine unacceptable, along with any effort to turn those countries against Russia — a message that the 2008 Russian-Georgian war also made crystal clear.”....
There would not have been such a concerted Russian nationalist response to the crisis had the West not sowed the seeds of suspicion and mistrust over the past 18 years by growing NATO’s presence in Eastern Europe, in spite of the assurances that Russia ostensibly received from the George H.W. Bush administration that “NATO will not expand one inch to the east.” Russia clearly views NATO expansion not only as provocative but also as a betrayal of an agreement, and it perceives NATO’s push toward its borders as an act of aggression — and Western leaders know it.
In 2004, NATO admitted seven new members, including the Baltic States along the Russian border. Four years later, the George W. Bush administration failed to win acceptance for Georgia and Ukraine — a bid that faced significant opposition from Germany and France — but the alliance symbolically declared that the countries “will become members of NATO.” Those actions have inevitably colored any developments.
8---Russia disappointed by U.S. vote against resolution condemning glorification of Nazism, ria novosti
The United States was the only nation to vote against a draft resolution condemning the glorification of Nazism...
Russia is disappointed that the United States voted against a draft resolution condemning the glorification of Nazism, and a number of states, including all members of the European Union, abstained from voting on the draft, the Russian Foreign Ministry said Wednesday.
Russia introduced to the UN a resolution condemning the glorification of Nazism and the desecration of World War II monuments in November.
The resolution condemns the construction of memorials in honor of former Nazis and Waffen-SS soldiers and the holding of public pro-Nazi demonstrations. It also includes recommendations to prevent the proliferation of neo-Nazi ideas on the Internet.
Last year 124 countries voted in favor of the resolution, while 55 delegations abstained. The United States was the only nation to vote against it.
Parades in honor of Waffen-SS veterans, involving veterans from the Latvian Legion and the 20th Estonian SS Division and their supporters, are held annually in Latvia and Estonia. Russia has repeatedly criticized the Baltic States for allowing these parades to take place.
In April 2007, a Soviet war memorial was dismantled in the Estonian capital of Tallinn just before the May 9Victory Day celebrations in Russia. The move led to street protests in which over 1,000 people were arrested and one Russian national was killed
9---Lavrov: Shanghai Cooperation Organization May Begin to Expand Later This Year,
Pakistan, India and Iran may be able to join the Shanghai Cooperation Organization (SCO) in the near future, Russian Foreign Minister Sergei Lavrov said.
Lavrov recalled that Pakistan, India and Iran have already expressed their wish to become full members of the organization.
The minister noted that Russia intends to give priority to further enhancement of the SCO’s efficiency, the consolidation of efforts in order to ensure an adequate response to the events in the region and the whole world.
SCO’s true priority is still the regional security, in particular – the increase in opportunities for joint fight against terrorism, extremism, drug trafficking, especially against in the light of the situation in Afghanistan, the minister said.
On September 11-12, an SCO summit will be held in Dushanbe. It will be attended by the leaders of Kazakhstan, Kyrgyzstan, China, Russia, Tajikistan and Uzbekistan, heads and representatives of observers and guests of the summit, as well as international organizations. Immediately after the meeting, Russia will become the chairman of the organization for one year, till the next summit.
10---MH17 crash investigation report hides truth, Pravda
"The Malaysian Boeing MH-17 was shot down from a gun of a MiG-29 aircraft, rather than a missile."
1--- There were no holes that could have been caused by shrapnel.
2-- "MiG-29 of the Ukrainian army are armed with GSh-301, 30-millimeter gun, with a rate of 1,500 rounds per minute. The gun was loaded with 150 shells containing tungsten alloy. These shells go through targets, leaving traces of perfectly circular shape.
3---30-millimeter gun inserts also a few explosive-incendiary shells, which explodes inside the cockpit, producing fragments with high velocities that get out of the fuselage of aircraft in the cockpit area, like shrapnels produced by detonation of the warhead of a surface-to-air missile.
4---There was no thick plume or white condensation at an altitude of ten kilometers from the surface, which should have been left from the launch of an air-to-air missile.
5--If such a large aircraft like Boeing-777 of Malaysia Airlines had been hit by surface-to-air missile, the crew would have been able to warn traffic control services of the situation on board
6--The Fighter airplane MiG-29 was approaching to fire its guns in the perpendicular direction to flight MH-17--(the MH-17 was flying on heading118°. Fighter airplane MiG-29 was approaching to fire its guns in the perpendicular direction to flight MH-17 (118 + 90 = 208)
7--Ukrainian fighter was less than 5 km away.(Lieutenant General Andrey Kartopolov and Igor Makushev proved the existence of a Ukrainian aircraft that would have stopped the fight of Malaysia Airlines, three minutes before the accident, estimating the distance that separated him from Malaysia Airlines to 3-5 km.
8-- The Ukraine fighter should have been at least 9.3 km. away from MH17, when it was actually 3 km away. (The Boeing 777 (weight 299,370 kg) belongs to the category of aircraft heavy (H - Heavy). Between this category of airplanes and fighter jet like MiG-29 (weight 10-20 t), Doc. 4444 requires air traffic controllers should create a gap of at least 9.3 km. Was it a mistake or a deliberate action of air traffic controllers of Ukraine and the Ukraine fighter aircraft 3 km far from flight MH-17?.....the normal separation for category H aircraft, followed by fighter jet is at least 11.1 km
9---The fighter was perpendicular to MH17 when it was downed (The best way to hit the cockpit was to approach almost perpendicular to the direction of flight MH-17. In this caseб the pilot of the fighter jet had the right conditions to get ready to fire from the distance of 900 m at B -777. If the approach speed of the Ukrainian jet fighter was about 280-300 meters per second, the repetition of the attack was impossible, and the Ukraine fighter pilot had 3-4 seconds for all these maneuvers. This could be a result of dozens of hours of training in simulators and flight conditions similar to those when flight MH-17 was shot down
11---Rebirth of Nazism to Become Real Threat for Future Europe: White Book, RIA Novosti
“The renaissance of Nazism is a rather possible and imminent reality of the future Europe,” the White Book distributed at the International Information Agency Rossiya Segodnya press conference says.
“In an effort to prevent the rebirth of the man-hateful ideology and practice 70 years after the end of the war it is necessary to acknowledge that there is such a threat and introduce a common system of measures aimed against the influence of radicals on the power and also ensure against its use for international policy goals what is currently seen in the Ukrainian crisis,” the survey says....
The growing political influence of neo-Nazis and ultranationalists in Ukraine has raised concerns among the country’s Russian speakers and other national minorities, prompting several eastern and southeastern regions to demand greater autonomy
12---Ex-CIA Analyst: Ukraine, Malaysia, Netherlands Conspiring to Hide Truth on MH17 Crash
McGovern said that the United States and Russia know what in fact had happened, while Ukrainian President Petro Poroshenko and his advisers may not be aware of the details, and in particular, on the air defense system and SU-25 fighter jets in the crash area
13--Unidentified Fragments Found in Bodies of MH17 Crew: Dutch Safety Board, RIA Novosti
September 10 (RIA Novosti) – Unidentified fragments have been found in the bodies of Malaysia Airlines flight MH17 pilots, their origin is currently being established, a Dutch Safety Board (DSB) spokeswoman told RIA Novosti Wednesday.
“Some fragments are found in the bodies of flight crew, pilots. We have to investigate them to see if they are fragments of the plane. If they are not, it might be fragments of the objects, coming from outside. We’re not sure yet what these pieces are fragments of. Experts are working with bodies,” DSB spokeswoman Sara Vernooij said.
On Tuesday, the DSB released a preliminary report on the MH17 crash. According to the report, the flight broke up in the air probably as the result of structural damage caused by “a large number of high-energy objects” that penetrated the aircraft from outside.
The analysts said that groundbreaking results should not have been expected as the investigation into the crash was hampered by the Kiev’s military operation in the region. Investigators also did not have rapid access to the crash site.
The DSB aims to publish the final report within a year of the date of the crash.
Flight MH17, flying from Amsterdam to Kuala Lumpur, crashed on July 17 in Ukraine’s eastern region of Donetsk, killing all 298 people on board. Kiev accuses independence supporters in eastern Ukraine of shooting it down but cannot provide any evidence. The local militia leaders insist that they do not have weapons capable of shooting down a plane flying at 32,000 feet.
Resurgent Nazism in Ukraine: Swastikas, SS badges and other Nazi regalia noticed among Ukrainian troops, RT
The troops from Ukrainian Azov and Donbass battalions were reportedly noticed wearing Nazi symbols – swastikas and SS badges.
According to a video on German TV station ZDF, Ukrainian soldiers were shown wearing swastikas and the “SS runes” of Adolph Hitler’s elite corps. The footage was shot by a camera team from Norwegian broadcaster TV2....
The Wolfsangel (Wolf’s Hook) Nazi symbol can be commonly seen on uniforms worn by men from the Azov battalion. It was originally used by the SS and the Hitler Youth, as well as various modern-day neo-Nazi groups.
Another militia group under Kiev’s control, the Donbass battalion, was created in Odessa in April to fight against the supporters of the People's Republic of Donetsk. In May the Ukrainian news portal LB.ua published a video showing a member of Donbass battalion killed in the fighting who has a Nazi swastika on his chest.
Far-right Right Sector party which first came to international spotlight at the end of November 2013, is considered very active in the violence which triggered the ouster of President Viktor Yanukovich. Right Sector fighters used clubs, petrol bombs, and firearms against Ukrainian police while wearing Nazi insignia.