The richest 1 percent is now wealthier than the rest of humanity combined, according to Oxfam, which called on governments to intensify efforts to reduce such inequality.
Friday’s panic sell-off on stock markets from China and Europe to the US, with the Dow giving up 391 points and crashing through the 16,000 point barrier, capped off two weeks that erased $5.7 trillion from global share values.
Kyle Bass: ... when you are thinking about their [foreign-exchange] reserve pile, and investor solace that they have so much money – a $3.5 trillion rainy day fund that they can weather any storm – the point is that their banking system used to be 41 trillion RMB only eight years ago and now it’s 184 trillion RMB. They have $31 trillion of assets in their banking system. Their economy is $10 trillion.
Goldman Sachs chief US equity strategist David Kostin: share buybacks.
One reason for the recent poor market performance is that corporate buybacks are precluded during the month before earnings are released. Any destabilizing macro news that occurs during the blackout window amplifies volatility because the largest source of demand for shares is absent
Share buybacks in the US are on pace for their biggest year since 2007, he adds, estimating $561bn for full-year 2015 (net of share issuance) and a decline to $400bn in full-year 2016.
Aside from shares repurchases already scheduled under 10b5-1 plans, the markets will have to wait until February for the buyback taps to start flowing again properly.
The reason that 2016 will prove to be a great historical inflection point is that the central banks of the world have finally run out of dry powder. After a 20 year spree in which their balance sheets exploded by nearly 11X—–from $2 trillion to $21 trillion—-they are being forced to shutdown their printing presses.
China has been obliged to stop because it has been slammed with a $1 trillion capital flight in the last year, and it’s accelerating. The BOJ and the ECB have already shot their wad and it’s done no good at all. The Fed spent 84 months dithering on the zero bound and now it has no dry powder left as the US economy slides into recession.
Accordingly, the great global credit bubble has finally run out of new central bank fuel. It has now surely reached its apogee at about $225 trillion compared to only $40 trillion back in 1994 when oil prices were still well under $20 per barrel. And soon the world’s mountain of debt will be falling in upon itself—–starting with the cratering Red Ponzi of China.
Buybacks in the third quarter for the S&P 500 companies rose 14.5% to $150.6 billion from the second quarter, according to new data from S&P Dow Jones Indices. Buybacks rose 3.7% from the pace set in last year’s third quarter, and for the 12 months ending in September, buybacks totaled $558.9 billion, up 1.6% from $550.1 billion a year ago.
There is one clear ramification: 73 companies, about 14.6% of the index’s members, reduced their shares outstanding count by at least 4% compared to a year ago, S&P senior index analyst Howard Silverblatt said. “Companies took advantage of the levels to increase their buybacks to reduce share count, and therefore add to their EPS at a time when EPS growth has faltered,” he wrote.
That means those companies have “front-loaded” a 4% gain into their EPS numbers, he said.
There is a long and ongoing debate about the value and waste of stock buybacks, one that probably isn’t going anywhere as long as these numbers keep rising, and corporate sales keep flat-lining. Of course, if you’re a shareholder, you don’t really care about all that. Total shareholder return, dividends plus buybacks, for 12 months through September totaled $934.8 billion, and that’s a record. That’s not exactly news, though. Total returns have now set a new record high for eight straight quarters.
In theory, buying back your own stock reduces the number of shares, thereby making the remaining shares more valuable. But it isn’t a precise formula: Stocks can go down despite a buyback program. And companies can use repurchased shares to pay executives and employees who get shares or options as part of their compensation, so the share count remains more or less the same despite the buyback program....
management could use the money for more practical things that will expand the business: research and development, for example, or new products.
“We think in some cases that buybacks are a tool used by managers and boards that don’t know what else to do with the cash,” says Ben Silverman, vice president of research at InsiderScore, an institutional research firm that tracks buybacks and legal insider trading. “They’re either not creative or not growth-oriented. There’s always something to invest in, no matter what kind of company you are.”...
Even more troubling is that stock buybacks power short-term gains, which, in turn, tend to benefit executives and board members most.
“A segment of investors, both retail and institutional, believe that buybacks are financial engineering, where the purpose is largely to create wealth in the form of stock-based compensation for management,” Mr. Silverman says....
Yet buyback fever often ends badly. The last peak in buybacks was the third quarter of 2007, after which stocks fell into a truly wretched bear market.
Velocity: M2 Velocity of Money Rate, is essentially a measure of how quickly money is changing hands. You can see from the chart M2 Velocity has been decreasing at pretty steady pace since 2000.
The prospect of four straight quarters of earnings declines is staring investors in the face on top of the worst multiweek selloff for stocks in years, and the worst start of the year ever.Another quarter of earnings declines follows worst start of the year.