The number one prop under the stock market has been corporations buying back their own stock, often at elevated valuations, often using borrowed money. SLL analyzed the phenomenon in “Peak Financial Engineering,” SLL, 4/14/15. Here’s another critical examination, from Tyler Durden, at zerohedge.com:
Over the course of the last several months we’ve taken every opportunity to point out the fact that undergirding the strength in equities is a wave of corporate buybacks. At nearly $350 billion, IG issuance recently hit a record for Q1 and HY supply hasn’t been too shabby either at $93 billion during the period. The supply deluge has of course been fueled by investors’ voracious appetite for anything that offers any semblance of yield in the face of a credit landscape where risk-free debt slides further into NIRP-dom with each passing month. Unfortunately, companies aren’t using the proceeds from debt sales to invest in future growth and productivity but are instead piling it all back into their own stocks, inflating both their shares and their bottom line and creating a false sense of corporate health. For more on this dynamic, see the following:
And The Biggest Buyer Of Stocks In 2015 Will Be…
Here Is The Reason Why Stocks Just Had Their Best Month Since October 2011
The Biggest Threat To The S&P 500 In The Next Month: “Biggest Buyer Of Stocks In 2015” Enters Blackout Period
Explaining US Stock And Bond Markets In 5 Easy ChartsAnd there are many, many more. Here are some visuals that illustrate the situation:
To see the charts and continue reading: Buybacks
