Category Archives: Capitalism

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

If share buybacks are supposed to be for the long-term benefit of the company, why do so many corporate insiders sell right after share buyback announcements lift the price of the stock? From Wolf Richter at wolfstreet.com:

“Right after the company tells the market the stock is cheap, executives overwhelmingly decide to sell.”

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.

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

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FANGMAN Stocks Are Not a Bubble, Pleads Goldman Sachs, by Wolf Richter

Conventional valuation don’t seem to matter much…when markets are on the way up. From Wolf Richter at wolfstreet.com:

This time, it’s different, say the strategists. So we’ll take a look.

In the bewildering wilderness of the most hyped Wall Street acronyms, we’re going to stick to FANGMAN – Facebook, Amazon, Netflix, Google’s parent Alphabet, Microsoft, Apple, and 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.

Market Cap,
billions
P/E
ratio
Annual revenue growth 2017 Revenue,
billions
Price-to-Sales Ratio
FB $562 32 47.1% $41 13.8
AMZN $797 210 30.8% $178 4.5
NFLX $156 243 32.8% $12 13.3
GOOG $783 48 23.7% $111 7.1
MSFT $774 56 5.5% $90 8.6
AAPL $935 19 6.7% $229 4.1
NVDA $156 44 40.6% $10 16.1
Combined: $4,163 $669.0

To continue reading: FANGMAN Stocks Are Not a Bubble, Pleads Goldman Sachs

Homeschooling Protects Children from Violence and Marxism, by Ron Paul

“Violence and Marxism” is almost a redundancy, but Ron Paul has a great way to protect your kids’ minds and bodies. From Paul at ronpaulinstitute.org:

The February mass shooting at a high school in Parkland, Florida prompted many parents to consider homeschooling. This is hardly surprising, as the misnamed federal “Gun-Free Schools” law leaves schoolchildren defenseless against mass shooters. Removing one’s children from government schools seems a rational response to school shootings.

School shootings are not the only form of violence causing more parents to consider homeschooling. Many potential homeschooling parents are concerned about the failure of school administrators to effectively protect children from bullying by other students.

Of course many parents choose homeschooling as a means of protecting their children from federal education “reforms” such as Common Core. Other parents are motivated by a desire to protect their children from the cultural Marxism that has infiltrated many schools.

The spread of cultural Marxism has contributed to the dumbing down of public education. Too many government schools are more concerned with promoting political correctness than ensuring that students receive a good education. Even if cultural Marxism did not dumb down education, concerns that government schools are indoctrinating children with beliefs that conflict with parents’ political, social, and even religious beliefs would motivate many families to homeschool.

Even when government schools are not intentionally promoting cultural Marxism or other left-wing ideologies, they are still implicitly biased toward big government. For example, how many government schools teach the Austrian economics explanation for the Great Depression — much less question the wisdom of central banking — or critically examine the justifications for America’s hyper-interventionist foreign policy?

Parents interested in providing their children with a quality education emphasizing the ideas of liberty should consider looking into my homeschooling curriculum. The Ron Paul Curriculum provides students with a well-rounded education that includes rigorous programs in history, mathematics, and the physical and natural sciences. The curriculum also provides instruction in personal finance. Students can develop superior oral and verbal communication skills via intensive writing and public speaking courses. Another feature of my curriculum is that it provides students the opportunity to create and run their own internet businesses.

To continue reading: Homeschooling Protects Children from Violence and Marxism

The Vatican’s Latest Anti-Capitalist Paper Calls for More Government Regulation, by Ryan McMaken

Why would anybody think a government can raise standards of private virtue? Historically, governments have done the exact opposite. From Ryan McMaken at mises.org:

Authored by Ryan McMaken via The Mises Institute,

In the classic 1966 film, A Man for All Seasons, the family of Thomas More – chancellor of England and eventual Catholic saint –counsels Thomas to arrest power-mad Richard Rich because they suspect (correctly) Rich will betray Thomas and because “that man’s bad.” To this, More replies “there’s no law against that.” Another family member retorts: “yes there is – God law.” More answers with: “then God can arrest him.”

Robert Bolt, the learned atheist who penned A Man for All Seasons knew enough about Catholic philosophy to communicate important Catholic concepts with this scene.

Among these is the fact that, in the Catholic view, as voiced by Bolt’s Thomas More, not every sin, moral defect, or character flaw justifies intervention by the state. The fact that Richard Rich was a betrayer and liar was not sufficient, More understood, to apply More’s police powers as Chancellor of England. After all, for centuries, many Church leaders had long agreed that applying state coercion to cure every social ill was often a cure that was worse than the disease. As Thomas Aquinas notes: “Accordingly in human government also, those who are in authority rightly tolerate certain evils, lest certain goods be lost, or certain evils be incurred.”

Moreover in response to the retort that “God’s law” demands action, Aquinas notes that even God himself is tolerant of moral defects:

Human government is derived from the Divine government, and should imitate it. Now although God is all-powerful and supremely good, nevertheless He allows certain evils to take place in the universe, which He might prevent, lest, without them, greater goods might be forfeited, or greater evils ensue.

So, when More jokes that “God can arrest” Rich if He sees fit, More is giving voice to an already established strain of thought in Catholic thinking.

Moreover, Aquinas’s views toward the state are relatively benign compared to others — Augustine, for instance — who viewed the state as a necessary but violent evil to be tolerated only because it might restrain the excesses of even worse criminals.

To continue reading: The Vatican’s Latest Anti-Capitalist Paper Calls for More Government Regulation

Why I Think the Stock Market Cannot Crash in 2018, by Wolf Richter

Companies are buying back their own shares at a record clip and Wolf Richter thinks that will put a floor under the stock market. From Richter at wolfstreet.com:

But the crash-insurance policy is a one-time deal. And then what?

The 85% of S&P 500 companies that have reported earnings so far disclosed they’d bought back $158 billion of their own shares in Q1, according to the Wall Street Journal. The quarterly record of $164 billion was set in Q1 2016. If the current rate applies to all S&P 500 companies, they repurchased over $180 billion of their own shares in Q1, thus setting a new record:

At this trend, including a couple of slower quarters, S&P 500 companies are likely to buy back between $650 billion and $700 billion of their owns shares in 2018. This would handily beat the prior annual record of $572 billion in 2007.

Here are the top buyback spenders in Q1:

  • Apple: $22.8 billion
  • Amgen: $10.7 billion
  • Bank of America: $4.9 billion
  • JPMorgan Chase: $4.7 billion
  • Oracle: $4 billion
  • Microsoft: $3.8 billion
  • Phillips 66: $3.5 billion
  • Wells Fargo: $3.34 billion
  • Boeing: $3 billion
  • Citigroup: $2.9 billion

Buybacks pump up share prices in several ways. One is the pandemic hype and media razzmatazz around the announcements which cause investors and algos to pile into those shares and create buying pressure. Since May 1, when Apple announced mega-buybacks of $100 billion in the future, its shares have surged 11%. The magic words.

Other companies with big share buyback programs have also fared well: Microsoft shares are up 14% year-to-date. And if buybacks don’t push up shares, at least they keep them from falling: Amgen shares are flat year-to-date.

Shares of the 20 biggest buyback spenders in Q1 are up over 5% on average year-to-date, according to the Wall Street Journal, though the S&P 500 has edged up only 2%.

Share buybacks also prop up prices because they create buying pressure by the company itself when it finally does buy the shares. This is the only entity in the market that doesn’t want to buy low. It wants to buy high since it’s trying to manipulate up its own shares. By design, it provides the relentless bid in a market that might want to sell off. The amounts are huge.

To continue reading: Why I Think the Stock Market Cannot Crash in 2018

“Real Socialism” Has Indeed Been Tried — And It’s Been a Disaster, by Ryan McMaken

Every time something called socialism collapses, the true believers say that it wasn’t “real socialism” that collapsed, because “real socialism” has never purportedly been tried. From Ryan McMaken at mises.org:

May 5th marks the 200th Anniversary of Karl Marx’s birth, and in spite of inspiring a wide variety of political movements that have caused countless human rights disasters, Marx continues to be an object of admiration among many intellectuals and artists. One such example can be seen in Raoul Peck’s new film The Young Karl Marx which portrays Marx is a principled radical with a laudable thirst for justice.

Fortunately for Marx the man and his reputation, he never personally gained control of the machinery of any state. Thus, the dirty work of actually implementing the necessary “dictatorship of the proletariat” was left up to others. And those who attempted to bring Marxism into the light of practical reality, quickly found that applied Marxism brings impoverishment and the destruction of human freedom. 

Nevertheless, after a century marked by brutal socialist regimes based on various interpretations of Marx’s ideas, Marx’s rehabilitation often rests on the idea that “real socialism” has “never been tried.” That is, a truly “pure” socialist experience — as Marx presumably wanted — has always been tainted by the presence of bourgeois ideas or lingering capitalistic habits present in the state apparatus.

A typical example of this sort of thinking can be found in Noam Chomsky’s insistence that the obviously socialist regime in Venezuela is really “quite remote from socialism.” And it’s also notable in philosopher Slavoj Zizek’s 2017 article ” The problem with Venezuela’s revolution is that it didn’t go far enough” at The Guardian. 

In Zizek’s view, it seems, socialism can work if the habits and customs of the status quo are destroyed utterly and replaced by entirely new ways of thinking. Or, as Zizek’s describes it, old proverbs (i.e., modes of thought) must be totally replaced by new proverbs. For example:

Radical revolutionaries like Robespierre fail because they just enact a break with the past without succeeding in their effort to enforce a new set of customs (recall the utmost failure of Robespierre’s idea to replace religion with the new cult of a Supreme Being). The leaders like Lenin and Mao succeeded (for some time, at least) because they invented new proverbs, which means that they imposed new customs that regulated daily lives.

Thus, the problem in Venezuela is not that countless private business have been seized, property rights been destroyed, and countless citizens deprived of basic freedoms. No, the problem is that the Venezuelan regime was too conservative and failed to implement a total break with the past.

To continue reading: “Real Socialism” Has Indeed Been Tried — And It’s Been a Disaster

This is Not a Market, by Raúl Ilargi Meijer

A supposed market in which the government intervenes to suppress price discovery is not a market. From Raúl Ilargi Meijer at theautomaticearth.com:


René Magritte La trahison des images 1929“[Price discovery] is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers”, says Wikipedia. Perhaps not a perfect definition, but it’ll do. They add: “The futures and options market serve all important functions of price discovery.”

What follows from this is that markets need price discovery as much as price discovery needs markets. They are two sides of the same coin. Markets are the mechanism that makes price discovery possible, and vice versa. Functioning markets, that is.

Given the interdependence between the two, we must conclude that when there is no price discovery, there are no functioning markets. And a market that doesn’t function is not a market at all. Also, if you don’t have functioning markets, you have no investors. Who’s going to spend money purchasing things they can’t determine the value of? (I know: oh, wait..)

Ergo: we must wonder why everyone in the financial world, and the media, is still talking about ‘the markets’ (stocks, bonds et al) as if they still existed. Is it because they think there still is price discovery? Or do they think that even without price discovery, you can still have functioning markets? Or is their idea that a market is still a market even if it doesn’t function?

Or is it because they once started out as ‘investors’ or finance journalists, bankers or politicians, and wouldn’t know what to call themselves now, or simply can’t be bothered to think about such trivial matters?

Doesn’t a little warning voice pop up, somewhere in the back of their minds, in the middle of a sweaty sleepless night, that says perhaps they shouldn’t get this one wrong? Because if you think about, and treat, a ‘thing’, as something that it’s not at all, don’t you run the risk of getting it awfully wrong?

To continue reading: This is Not a Market