If you think your stocks are doing poorly, check out the performance of some of the most sophisticated investors, the ones with more knowledge about what's going on inside businesses than anyone else: Companies that buy their own shares.
The companies losing money on these bets are down a collective $126 billion over the past three years, a decline of 15 percent.
Many corporations would have been better off investing that cash in an index fund instead of their own stock. The overall market rose 39 percent over the same period. The companies could also have distributed that cash as dividends to shareholders, allowing them to spend what is, in the end, their money.
And it's not just a few big corporate losers accounting for all the pain. The group includes 229 companies in the Standard and Poor's 500 index, nearly half of the companies in the study prepared by FactSet for The Associated Press.
When a company shells out money to buy its own shares, Wall Street usually cheers. The move makes the company's profit per share look better, and many think buybacks have played a key role pushing stocks higher in the seven-year bull market.
But buybacks can also sap companies of cash that they could be using to grow for the future, no matter if the price of those shares rises or falls...
$100 MILLION CLUB
Nearly a third of the companies studied, 153 in all, lost $100 million or more on their purchases in three years.
And, sure enough, buybacks approached record levels recently even as earnings for the S&P 500 dropped and stocks got more expensive. Companies spent $559 billion on their own shares in the 12 months through September, according to the latest report from S&P Dow Jones Indices, just below the peak in 2007 — the year before stocks began their deepest plunge since the Great Depression.
Negative interest rates in the U.S. may seem like a far-fetched idea, but the Federal Reserve is telling banks to prepare, just in case
One nation mired in an economic slump decides that the best way out is to devalue its currency, cheapening its exports and thus making them more attractive in countries that have higher-yielding currencies and, consequently, more buying power.
Seeing the success that country has, another seeks to emulate. And then another. And another. And another. In order to stay ahead of the game, central banks keep devaluing until there's nothing left, tangibly at least, to devalue, and negative interest rates come into play
The idea would be to charge banks to store reserves, making the cost prohibitive to let the money lie fallow there and push it into the broader economy through lending, thus stimulating growth.
Today, the Nikkei plunged 919 points or 5.4%. It’s now down 23.1% from its recent high, in a solid bear market. Fears about global growth coagulated with fears about a banking crisis radiating out from Europe, and particularly its epicenter, Deutsche Bank.
So Japan’s four systemically important megabanks that will not be allowed to implode if at all possible got totally smoked today, and have gotten crushed since their highs last year:
Mitsubishi UFJ Financial Group plunged 8.7%, down 47% from June 2015.
Mizuho Financial Group plunged 6.2%, down 38% since June 2015.
Sumitomo Mitsui plunged 6.2%, down 26% since May 2015
Nomura plunged a juicy 9.1%, down 42% since June 2015
Investors may not be able to count on a once-reliable economic warning bell to ring before the next recession. Before every one of the past seven U.S. recessions, long-term interest rates fell below short-term rates, producing what economists call a yield curve inversion. Historically, the slope of the yield curve has been such a reliable predictor of economic conditions that economists at New York and Cleveland Federal Reserve banks use it to calculate the probability of recession.
Ultralow yields on short-term bonds, however, may prevent the yield curve from inverting even if the economy is about to contract.
The yield curve is a graph of interest rates arranged in order of bond maturities. Normally, it slopes upward because long-term interest rates are higher than short-term rates to compensate investors for accepting increased risk. Long-term bond yields are thought to reflect the average of future short-term interest rates expected over the life of the bond plus this so-called term premium.
Another day, another round of bloodletting for bank stocks.
The KBW Nasdaq Bank index fell another 3% Monday on yet another miserable day for financial markets. It is now down nearly 19% so far this year and has shed a quarter of its value since hitting a post-financial-crisis peak last summer.
The reasons for the carnage are many: fears of a global slowdown, worries about energy-related losses, spillover from the grinding down of European bank stocks. But there is also a particular issue at play: Bank profitability is again under serious threat.
To see how, look to the difference between yields on 10-year and two-year U.S. Treasurys. The difference, or spread, between the two is often seen as a rough proxy for bank profitability, based on the profit banks make from taking in deposits and lending out that money.
On Monday, the 2-10 spread fell to 1.09 percentage points—its lowest level in at least five years. This happened as the yield on the 10-year Treasury fell to 1.74%, which was where it bottomed in early 2015. The lower that spread, the tougher it is for banks to eke out a profit. This point of pain is even worse in an age of ultralow interest rates because banks effectively can’t reduce their funding costs any further since they are in many cases near zero.
In the face of that, investors seem to be saying there is little point to owning bank stocks. Increases in bank-stock valuations from 2013 onward were based on the idea that the U.S. Federal Reserve would be lifting interest rates and that the subsequent normalization would lift bank profits, returns and share prices.
he Bank of Japan recently announced that it would follow the European Central Bank’s lead and implement a “negative interest rate” policy. Reducing interest rates is supposed to increase spending and investment, spurring growth.
It won’t work. Negative central-bank interest rates will not create growth any more than the Federal Reserve’s near-zero interest rates did in the U.S. And it will divert attention from the structural problems that have plagued growth here, as well as in Europe and Japan, and how these problems can be solved.
Part of the impetus behind a central bank’s negative interest-rate policy is a desire to devalue the currency. With lower market interest rates, holders of euros, for example, may sell them to flee to countries with higher interest rates—driving down the euro’s exchange rate, boosting European exports and growth. But it is impossible for every country in the world to depreciate its currency relative to others. If the European Central Bank hopes to force euro depreciation against the yen and the Bank of Japan hopes to force yen depreciation against the euro, one or both of the central banks will fail.
The situation in the U.S. is not much different. The interest rate on a 10-year T-bond is a bit below 2%. Can any informed person believe that the cost of borrowing is holding back capital formation in the United States?
Nonresidential investment in the U.S. actually fell in the fourth quarter, and year over year is up by a paltry 2.9%. Central banks are part of the problem, because their monetary-policy gimmicks are promising to citizens and legislators alike what they cannot deliver. Honest central bankers know that policy gimmicks will not deliver growth, but admitting as much is politically verboten.
" The Aleppo operation has now entered its deciding phase, whose objective is to take control of the entire length of border with Turkey. The West expected Syrian government forces to become bogged down in Latakia at least until April, when the change in weather would impose an operational pause. This area is vital to ensure continued supply of reinforcements and munitions by Turkey, which is why its control is a matter of life and death for the Islamists. Fighting in Latakia and Aleppo is tying down significant Syrian forces which otherwise could be used to annihilate the demoralized militants in Idlib province. But now, as it to spite the West, the terrorists are on the brink of complete defeat in Syria’s north-west. The victory will free sizable forces that could next be used to defeat Idlib province militants. That defeat, in turn, will destroy the terrorist front leaving the militants no choice but to flee to Turkey. Erdogan is no doubt breaking out in cold sweat, knowing that his terrorist chickens are about to come home to roost." politikus.ru
Rebel forces are giving up the fight in Syria's NW. Having been defeated in their own minds, they are either fleeing toward the Turkish border in the case of the Nusra and other jihadi elements or in the case of the less theologically inclined surrendering to the government and in many cases joining government sponsored local defense groups formed to hold population centers recently re-occupied by the Syrian government and its allies (R+6