It takes 50000 nuts to put a car together, but only one to scatter them all over the road.
Darryl Somers
Corporations are using share buyback programs to manipulate earnings, by reducing the float of outstanding shares. This ploy was not as ubiquitous before, but today it is being used rather indiscriminately by companies as means to boost EPS. Corporations borrow money and repurchase their own shares; in essence they buying something they do not need with money they do not have. This modern form of alchemy turns potential losses into profits or can be utilized to make moderate profits appear to be impressive in nature. We are now in the paradigm of lies and deceit. In these conditions, the truth does not thrive. How can truth or reality have a chance under such conditions? Every piece of data that can be manipulated has been or is being manipulated to create the impression that all is well.
Many experts predict that share buybacks and dividend payments by US companies are expected to reach new highs in 2015. The troubling factor is that it appears that companies are taking the easy path in their quest to boost profits. Rather than investing in the future, they are spending inordinate sums of money on buying back their own shares.
Goldman Sachs forecasts that an 18% jump in buybacks for 2015.
"Corporate activity in early 2015 supports our view that the S&P 500 will return more than $1 trillion of cash to investors this year," said David Kostin, chief U.S. equity strategist at Goldman in New York said in an April 24 note to clients. Full Story
The Fed’s balance sheet has swelled to roughly $2.4 trillion since the start of QE. S&P 500 companies have spent $2.41 trillion on buying back their own shares since the beginning of this bull market. Thus, it would be fair to state that US corporations have taken over from where the Fed left off.
What could be construed as alarming is that in the first quarter S&P 500 companies returned more money to share holders than they earned? This occurred in the 4th quarter of 2008 when the entire S&500 reported a net loss but still forked out over $110 billion on dividend and share buybacks. Something is off here and based on Howard Silverblatt comments (a senior index analyst at the S&P down…
