Tag Archives: Stock Market

Corporate Share Buybacks Looking Dumber By The Day, by John Rubino

Somehow this is legal: stock-option laden managements authorize their corporations to buy back shares, often with borrowed money, thus theoretically supporting the share price and enriching management. It doesn’t always work out, especially when the stock market goes down. From John Rubino at dollarcollapse.com:

A recent MarketWatch article notes that:

GE was one of Wall Street’s major share buyback operators between 2015 and 2017; it repurchased $40 billion of shares at prices between $20 and $32. The share price is now $8.60, so the company has liquidated between $23 billion and $29 billion of its shareholders’ money on this utterly futile activity alone. Since the highest net income recorded by the company during those years was $8.8 billion in 2016, with 2015 and 2017 recording a loss, it has managed to lose more on its share repurchases during those three years than it made in operations, by a substantial margin.

Even more important, GE has now left itself with minus $48 billion in tangible net worth at Sept. 30, with actual genuine tangible debt of close to $100 billion. As the new CEO Larry Culp told CNBC last Monday: “We have no higher priority right now than bringing those leverage levels down.” The following day, GE announced the sale of 15% of its oil services arm Baker Hughes, for a round $4 billion.

Of course, since that sale values Baker Hughes at $26 billion, and GE paid $32 billion for 62% of Baker Hughes as recently as last year, which looks to me like a valuation for the whole company of $52 billion, GE shareholders appears to have lost half the value of their investment in Baker Hughes in about 18 months.

But GE is just one of several hundred big companies with CEOs who now have to justify a massive, in some cases catastrophic waste of shareholder cash.

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Mind Blowing, by the Northman Trader

There are a lot of paradoxes in financial markets and in the economy at large. From the Northman Trader at northmantrader.com:

We’re in one of the longest economic expansion cycles in history and nobody’s happy. It’s mind blowing. You’d think 2018 would have people dancing in the streets. 3.7% unemployment, record stock market prices. Well the ladder until recently that is.

So let me rephrase:

What happens if you have record buybacks, record dividends, and record earnings but 89% of assets yield a negative return in US dollar terms?

No really that’s just what happened:

The short answer is: Nobody knows because it has never happened before.

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Pushing Past the Breaking Point, by MN Gordon

Something’s got to give in the US and global economy. From MN Gordon at economicprism.com:

Mankind’s willful determinations to resist the natural order are in vain.  Still, he pushes onward, always grasping for the big breakthrough.  The allure of something for nothing is too enticing to pass up.

Systems of elaborate folly have been erected with the most impossible of promises.  That prosperity can be attained without labor.  That benefits can be paid without taxes.  That cheap credit can make everyone rich.

Central to these promises are the central government and central planning authorities.  They take your money and, in return, they make you a dependent.  They promise you a secure retirement, and free drugs, while running a scheme that’s well beyond anything Charles Ponzi ever dreamed of.

According to the government’s statistics, the economy has never been better.  By the official numbers, we’re living in a magical world of full employment, 2.3 percent price inflation, and the second-longest growth period in the post-World War II era.  Agreeable reports like these are broadcast each month without question.

Still, we have some reservations.  How come, with the nirvana of full employment, 62 percent of all U.S. jobs don’t pay enough to support a middle class life?  An economy with full employment should be an employee’s market; one where employees can name their price.

Surely, workers would select a middle class life if they could.  But they can’t…because full employment’s a sham.

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The Damnable Cult of the Stock Market and the Istanbul Bonesaw Massacre, by David Stockman

Should America’s foreign policy be driven by its potential effects on the stock market? That such a question can be seriously asked shows how out of whack things are. From David Stockman at antiwar.com:

During an appearance on Fox Business yesterday we were asked about the Khashoggi affair and whether any intemperate response by Washington might inconvenience the party kids’ reviling on Wall Street. Perhaps we were having a bad hair day, but the question did trigger a fairly intemperate response on our part.

For crying out loud, Mohammed Bin Salman (MBS) is hands down the most murderous thug operating on the middle eastern stage at the moment, and he’s got a lot of competition for the title.

For instance, last month General al-Sisi apparently spent some of the $1.5 billion Washington sends him each year to run a show trial against 700 Egyptians who have been in jail the past five years for protesting his bloody 2013 coup against Egypt’s first freely elected president, Mohamed Mursi.

Their sin, of course, was that they had exercised the right of free speech – which supposedly the Arab Spring had conferred upon them – in order to affiliate with the Muslim Brotherhood. The latter is the scourge of tyrants and greedy monarchs throughout the Islamic world; and is especially loathed by the House of Saud, which may explain a thing or two about the missing body parts of Mr. Khashoggi, who was also an outspoken brotherhood adherent.

In any event, 75 of these protesters are to be awarded the hangman’s noose, and the rest a long stay in General al-Sisi’s hospitality suites, which are widely understood to be not all that.

Still, that ain’t nothin’ compared to the virtual genocide that MBS has conducted against Yemen. And there the body parts in question are the fragments of Yemeni civilians – frequently women and children – who get in the way of MBS’ Washington supplied and targeted bombs, drones, shells and bullets; or who simply drop dead from starvation and the worst outbreak of cholera in recent times.

According to Save the Children, upwards of 50,000 children died from hunger and disease in 2017 alone, while the UN estimates that at least 16,000 civilians have been killed or maimed by the Saudi air attacks.

So we called a spade a spade on the matter, only to have our Fox host retort as follows:

“…..not making a judgment on the moral right or wrong of the matter…but if we crack down hard with sanctions and such, are you telling us you don’t think there is a financial market impact?”

Of course that wasn’t what we were saying. But what we were thinking was: Really?

Apparently this Foxified stock market cult-boy assumes even America’s foreign policy should be driven by the divine right of the casino to be pleasured by rising stock prices each and every day.

Then again, it looks like Fox’s greatest Fan-boy is slouching in the same direction and for the same reason. That is, to keep what he has now embraced as the Trump Bubble levitated come hell or high water.

As the Middle East Eye noted this morning, it would appear that Jared Kushner and/or the Donald have seized upon a solution. Namely, that the hotheaded 33-year old MBS, who has created the greatest murder spectacle since O.J. Simpson’s wild ride in the Bronco, could benefit from the steadying hand of, well, his 28-year old brother, Khalid bin Salman!

“In DC the talk is about Khalid becoming a deputy crown prince to show the world that MBS is basically opening up his autocratic and self-centered leadership to include others and create more accountability.

We don’t know whether this prospective Salman Brothers duo can make the Istanbul Bonesaw Massacre go away or not, or keep the stock market rising on its appointed ascent. But we can at least hope the MBS contretemps will stir a modicum of thought in the Imperial City about the larger issue involved.

Namely, that the biggest state sponsor of terror in the Middle East is Saudi Barbaria, not the Iranians. And that the house of Saud’s corrupt bargain with its own medieval Wahhabi clerics is the true source of jihadi terrorism in the region, not the Shiite/Alawite communities of Iran, Syria and Lebanon.

The truth of the matter is that it was the Iran-led Shiite coalition – with the help of the Russian Air Force – which essentially extinguished the barbaric Islamic State in Syria and Iraq.

So not only has Washington long been on the wrong side of the Shiite/Sunni divide, but owing to the Donald and Jared’s bromance with MBS, the Trump administration has taken the US right off the deep-end with its vicious attack on the Iran nuke deal and the ruling regime in Tehran.

And that’s the real evil being perpetrated by MBS. His infantile yet bloodthirsty vendetta against Iran is the driving force behind much that roils the middle east at present.

Thus, MBS’ political and economic attack on Qatar was motivated not only by the Muslim Brotherhood friendly policies of its ruler, but more especially by Qatar’s friendly relations and diplomatic recognition of Iran, with which it shares the largest natural gas field in the world.

Likewise, he recently kidnapped, roughly interrogated and humiliated Prime Minister Hariri of Lebanon for being too soft on Hezbollah. Never mind that the latter controls the largest bloc in Lebanon’s parliament and is a participant in the nation’s constitutionally prescribe three-way split of power – wherein the Shiite elect the Speaker of the Parliament, the Sunnis name the Prime Minister and the Chrisitians select the country’s President.

But none of this mattered because MBS is determined to confront Tehran and its allies from one end of the Mideast to the other. And that’s the real reason for his genocidal attack on Yemen.

The latter is among the poorest, most industrially backward redoubts in the entire world and doesn’t remotely have the capacity to threaten Riyadh. Its GDP of just $18 billion or a paltry $650 per capita is less than 3% of Saudi’s stupendous oil-fueled GDP, which funds the fourth largest military budget in the world.

And now Yemen’s polity has been completely shattered, too, by civil war and the relentless Saudi bombing campaigns.

The west and north are controlled by the Houthi government, which sized power during 2015 in the country’s capital city of Sana’a. So doing, they inherited a large cache of American weapons left behind by the fleeing official government.

At the same time, the south and east are fragmented between former President’s Hadi’s Saudi puppet government and regions controlled by al-Qaeda, the Muslim Brotherhood and various tribal potentates and small time warlords – some or all of whom are warring with each other as well as with the Houthi.

In a sane world it would be instantly obvious that America has no dog in this fratricidal bloodletting in one of the true armpits of the planet. But the Houthis, who have long dominated their region of the country, practice a form of Shiite Islam. In turn, that makes them a confessional ally of Iran and therefore a convenient target for MBS’ proxy war on Tehran.

That’s the sum and substance of the Yemen catastrophe: It’s a genocide launched three years ago by the then 30-year old Defense Minister of Saudi Arabia and son of its dementia-enfeebled king for no other purpose than to kick the Iranians in the shins.

But one thing has led to another – including the aforementioned bromance of the Donald and his son-in-law with a reckless power-hungry young tyrant who has gotten the White House to fall hook, line and sinker for his anti-Iranian agenda. And that didn’t take much doing – since Bibi Netanyahu had already polluted their thin grasp of the region with his own demonization of Tehran.

The irony is palpable. The boys and girls on Wall Street may get by accident that which they desperately do not want: Namely, a material oil outage in the Persian Gulf and a temporary surge in oil prices back to $150 per barrel.

That eventuality would make no matter in the longer run because world supply and demand would adjust, and high-cost deep water oil and shale production would get an added incentive, as would conservation and all the various flavors of alternative energy.

But a Persian Gulf oil interruption would instantly shatter an egregious stock market bubble that is being held aloft on fumes and awaits only for a windshield on which to splatter.

At the end of the day, however, that may well be the silver lining.

The Donald’s demented sanctions campaign to reduce Iran’s oil exports to zero after November had already threatened to upset the applecart in the global oil market; and, apparently, it had also given the reckless Crown Prince the impression that he could operate with impunity, and that no act of thuggery was to brazen to be eschewed.

But now the Khashoggi imbroglio threatens to get totally out of hand. Mohammed bin Salman’s recklessness in Istanbul may yet send the house of Saud into an existential crisis – especially if the Donald’s stubby little hands are forced to severely punish the Saudi’s owing to the overwhelming sentiment of the world community.

That is to say, along with the collapse of the stock market we could also see the collapse of the monarchy, and the seizure or sabotage of its Persian Gulf oil fields. After all, they happen to lie in the eastern region of the country which is heavily populated by Shiites, who have been brutally prosecuted by MBS.

Needless to say, you will be worse for the wear if you hang around the casino in the face of this potential double collapse.

But the world will be far better off on both counts.


Bubbles, Balloons, Needles and Pins, by Raúl Ilargi Meijer

Will the Chinese economy implode? From Raúl Ilargi Meijer at theautomaticearth.com:

It’s no surprise that China has its own plunge protection team -but why were they so late?-, nor that Beijing blames its problems on Trump’s tariffs. GDP growth was disappointing at 6.5%, but who’s ever believed those almost always dead on numbers? It would be way more interesting to know what part of that growth has been based on debt and leverage. But that we don’t get to see.

So we turn elsewhere. How about the Shanghai Composite Index? It may not be a perfect reflection of the Chinese economy, no more than the S&P 500 is for the US, but it does raise some valid and curious questions.

Borrowing from Wolf Richter, here are some stats and a graph::
• Lowest since November 27, 2014, nearly four years ago
• Down 30% from its recent peak on January 24, 2018, (3,559.47)
• Down 52% from its last bubble peak on June 12, 2015 (5,166)
• Down 59% from its all-time bubble peak on October 16, 2007 (6,092)
• And back where it had first been on December 27, 2006, nearly 12 years ago.

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The Global Financial System Is Unraveling, And No, the U.S. Is Not immune, by Charles Hugh Smith

The impending financial crisis will be global, which means the US won’t escape it. From Charles Hugh Smith at oftwominds.com:

Currencies don’t melt down randomly. This is only the first stage of a complete re-ordering of the global financial system.
Take a look at the Shanghai Stock Market (China) and tell me what you see:
A complete meltdown, right? More specifically, a four-month battle to cling to the key technical support of the 200-week moving average (the red line). Once the support finally broke, the index crashed.
Now take a look at the U.S. S&P 500 stock market (SPX):

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Huge New Prop under the Stock Market is a One-Time Affair, by Wolf Richter

The biggest buyers in the stock market are corporations buying their own overvalued shares. From Wolf Richter at wolfstreet.com:

Crash insurance with an expiration date. But its working while it lasts.

In May, with great and perfectly orchestrated fanfare, US corporations announced plans to buy back $173.6 billion of their own shares sometime in the future. It was the largest monthly buyback announcement ever. And some of the announcements were expertly timed to overcome operational debacles.

The record amount of share repurchase announcements was due “in large part” to the changes in the corporate tax law, according to TrimTabs, which gathered the data.

This report was released when the digital ink was still drying on my musings about the FANGMAN stocks – Facebook, Amazon, Netflix, Google’s parent Alphabet, Microsoft, Apple, and Nvidia – that are so immensely overvalued that Goldman Sachs considered it necessary to come out with a note explaining that, based on fundamentals, they’re actually not in a bubble, which I had some fun pooh-pooing.

Some of the FANGMAN stocks are massive share buyback queens, such as Apple and Microsoft. Others are bottomless cash-sinkholes, such as junk-rated Netflix, which has to constantly raise new money, either by selling more shares or selling debt, so that it has more fuel to burn through, and it doesn’t have a dime to buy back its own shares.

That $173.6 billion in share repurchase plans includes the record-breaking mega-announcement from Apple that it would buy back $100 billion of its own shares. Here are the top five that account for $134.3 billion, or 77% of the total:

  • Apple: $100 billion
  • Micron: $10 billion
  • Qualcomm: $8.8 billion
  • Adobe: $8.0 billion
  • T-Mobile: $7.5 billion

To put that May total of $173.6 billion – these are just announcements of planned repurchases sometime in the future that may never fully transpire – into perspective: In Q1, total actual share buybacks reported by the S&P 500 companies amounted to $178 billion, an all-time record. That averages out to “only” $59.3 billion a month on average, compared to the announcements in May of $173.6 billion.

To continue reading: Huge New Prop under the Stock Market is a One-Time Affair