Stock buy backs.

stock buybacks mar 14 2016


This looked like an interesting graph from Bloomberg. There are different schools of thought with respect to stock buy backs. On the one hand you have the modern approach that approves buy backs for pragmatic reasons. Companies earn so much that they cannot reinvest in themselves, or, alternatively, cost of borrowing are far cheaper than issuing equity so why not redeem? On the other hand you have the notion that buying back stock is tantamount to admitting that you are out of investment ideas and that, moreover you are probable engaging in some nefarious exercise aimed at manipulating the stock values ( and your bonus).

Whatever the case, it is perfectly clear that the prevalence of stock buy backs in the last decade or so, is driven by cheap money and just one of the many manifestations of Central Bank largesse. Income inequality is a direct and inevitable result. Note that the buy backs , at least for the past your or so, are accompanied by rising mutual fund redemptions.

From an EW perspective, there is clearly an initial 3-wave drop during the “great recession” and now we are pretty close to double topping in what could very well be a B-wave. This is the hallmark of a “flat” and now wave C down should be underway.