Stock Prices Are Surging Because Corporations Are Spending More Money On Stock Buybacks Than Anything Else

The primary reason why stock prices have been soaring in recent months is because corporations have been buying back their own stock at an unprecedented pace.  In fact, the pace of stock buybacks is nearly double what it was at this time last year.  According to Goldman Sachs, S&P 500 companies spent 384 billion dollars buying back stock during the first half of 2018.  That is an absolutely astounding number.  And in many cases, corporations are going deep into debt in order to do this.  Of course this is going to push up stock prices, but corporate America will not be able to inflate this bubble indefinitely.  At some point a credit crunch will come, and the pace of stock buybacks will fall precipitously.

Prior to 1982, corporations were not permitted to go into the market and buy back stock.

The reason for this is obvious – stock buybacks are a really easy way for corporations to manipulate stock prices.

But these days it is expected that most large corporations will engage in this practice.  Large stockholders love to see the price of the stock go up, and they are never going to complain when smaller shareholders are bought out and their share of the company is increased.  And corporate executives love buybacks because so much of their compensation often involves stock options or bonuses related to key metrics such as earnings per share.

So in the end, stock buybacks are often all about greed.  It is a way to funnel money to those at the very top of the pyramid, and those stock market gains are taxed at capital gains rates which are much lower than the rates on normal income.

Normally, you would expect successful companies to invest most of their available cash back into operations so that they can make even more money in the future.  And for 19 of the past 20 years, corporations have spent more on capital investments than anything else.  But now, share buybacks have actually surpassed capital spending.  The following comes from CNN

But that doesn’t mean companies aren’t spending on job-creating investments, like new equipment, research projects and factories. Business spending is up 19% — it’s just that buybacks are growing much faster.

In fact, Goldman Sachs said that buybacks are garnering the largest share of cash spending by S&P 500 firms. It’s a milestone because capital spending had represented the single largest use of cash by corporations in 19 of the past 20 years.

And this trend seems to be accelerating during the second half of 2018.  It is being projected that firms will spend more than 600 billion dollars on stock buybacks during the second half of this year, and that will bring the grand total for 2018 to more than a trillion dollars

And the trend may not be done yet. Goldman Sachs predicted that share buyback authorizations among all US companies in all of 2018 will surpass $1 trillion for the first time ever.

Wow.

Wouldn’t it be nice if we had more than a trillion dollars that we could put toward reducing the national debt?

This is the reason why stocks hit another new all-time record high this week.  Stock buybacks have reached absolutely insane levels, and what we are witnessing is essentially a giant orgy of greed.

To give you some perspective, the previous annual record for stock buybacks was just 589 billion dollars in 2007.

This year, we may come close to doubling the previous record.

And let us not forget that the year after 2007 was the worst financial crisis since the Great Depression.

So what corporations are the worst offenders?  Here is more from CNN

Apple (AAPL) alone spent a whopping $45 billion on buybacks during the first half of 2018, triple what it did during the same time period last year, the firm said. That included a record-shattering sum during the first quarter.

Amgen (AMGN), Cisco (CSCO), AbbVie (ABBV) and Oracle (ORCL) have also showered investors with big boosts to their buyback programs.

As I noted earlier, corporate insiders greatly benefit from stock buybacks, and they took advantage of massively inflated stock prices by selling off $10.3 billion worth of their shares during the month of August.

Inflating your stock price by cannibalizing your own shares is not a good long-term strategy for any corporation, but without a doubt it is making a lot of people very wealthy.

But in the process, the size of the stock market as a whole has been steadily shrinking.  In fact, the number of shares on the S&P 500 has fallen by almost 8 percent since the beginning of 2011…

According to Ed Yardeni, the number of S&P 500 shares has shrunk by 7.7% since the start of 2011. This tends to increase the earnings per remaining share and the dividends available per remaining share.

This is yet another example that shows why the stock market has become completely disconnected from economic reality.  Wall Street is inhabited by con men that are promoting Ponzi scheme after Ponzi scheme, and it is only a matter of time before the entire system collapses under its own weight.

But for now, the euphoria on Wall Street continues as stock prices continue to march higher.  Meanwhile, we continue to get more signs of trouble from the real economy.  For instance, this week we learned that the third largest bank in the entire country is going to lay off thousands of workers

Wells Fargo, the third-biggest U.S. bank, plans to lower its employee headcount by 5 percent to 10 percent in the next three years as part of its ongoing turnaround plan, the company announced Thursday.

The bank has 265,000 employees, meaning the reduction would result in a loss of between 13,250 and 26,500 jobs.

Why would they do that if the economy was in good shape?

And globally, the emerging market currency crisis has continued to escalate.  According to one source, more than 80 percent of all global currencies have fallen in value so far this year…

A review of the values of 143 global currencies indicates that so far this year, more than 80 percent have fallen in value.

Another eleven appear to be pegged to the dollar and 13 have risen in value. Of the 13 that have increased in value, only six are up more than 1 percent versus the dollar.

There have been outsized declines in countries like Venezuela (down 99 percent), Argentina (53 percent) and Turkey (38 percent). However, Brazil is down 20 percent, Russia 15 percent, India 11 percent, Sweden 10 percent, and the Philippines 8 percent. Big economies like China are experiencing a 5 percent currency value decline while the Euro is off by 3 percent.

I applaud those that have made lots of money in the stock market, but the party will not last forever.

In 2007 corporations were pouring hundreds of billions of dollars into stock buybacks, and it propped up the market for a time.  But eventually the bubble burst and the crisis of 2008 was so dramatic that it will be remembered forever.

Now we are facing a similar scenario, and it is just a matter of time before this bubble bursts as well.

About the author: Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

The 5 Previous Times This Stock Market Indicator Has Reached This Level Stock Prices Have Fallen By At Least 50 Percent

Have you ever heard of the “Sound Advice Risk Indicator”?  Every single time in our history when it has gone above 2.0 the stock market has crashed, and now it has just surged above that threshold for the very first time since the late 1990s.  That doesn’t mean that a stock market crash is imminent, but it is definitely yet another indication that this stock market bubble is living on borrowed time.  But for the moment, there is still quite a bit of optimism on Wall Street.  The Dow set another brand new all-time record high earlier this week, and on Wednesday we learned that this bull market is now officially the longest in our history

For context, a bull market is defined as a 20% rally on a closing basis that’s at no point derailed by a subsequent 20% decline. March 9, 2009, has long been the agreed-upon starting point for such calculations because that was the absolute bottom for the prior bear market, which ended that day.

The S&P 500 has surged a whopping 323% over the period, with its roughly 19% annualized return slightly lagging behind the historical bull market average of 22%.

Of course the U.S. economy has not been performing nearly as well.  Even if you accept the highly manipulated numbers that the federal government puts out, we haven’t had a year when GDP grew by at least 3 percent since the middle of the Bush administration.

It simply is not possible for stock prices to continue to soar about 20 percent a year when the U.S. economy is growing less than 3 percent a year.  At some point a major adjustment is coming, and it is going to be exceedingly painful.

Author Gray Cardiff has been touting his “Sound Advice Risk Indicator” for many years.  He believes that the relationship between the S&P 500 and the median price of a new house in the United States is very important, and this is the very first time since the late 1990s that this indicator has entered the danger zone

The “Sound Advice Risk Indicator” is a different story. This indicator, the brainchild of Gray Cardiff, editor of the Sound Advice newsletter, is derived from the ratio of the S&P 500 to the median price of a new U.S. house. For the first time since the late 1990s, and for only the sixth time since 1895, this indicator has risen above the 2.0 level that represents a major sell signal for equities.

So should we be concerned?

In previous instances when this level has been breached, a crash hasn’t always happened right away, but in every instance the market eventually fell “by 50 % or more”

To be sure, Cardiff is quick to emphasize, his risk indicator is not a short-term market timing tool. In the wake of past occasions when it rose above 2.0, for example, equities stayed high or even continued rising “for many months, sometimes even a couple of years.” However, he continues, “in all cases, a major decline or crash followed, pulling down stock prices by 50% or more.”

Because Wall Street is so highly leveraged today, a 50 percent decline in stock prices would be totally catastrophic.  Banks would go down one after another, and we would be facing a financial crisis that would make 2008 look like a Sunday picnic.

And the truth is that much of the world is already in crisis mode.  The mainstream media is telling us that Italy is teetering on the brink of “financial disaster”, and China appears to be entering a serious economic downturn as the trade war begins to take a substantial toll on their economy.

Meanwhile, emerging market currencies continue to plummet, and this week it has been Brazil’s turn to capture the headlines.  The Brazilian real is absolutely crashing, and many analysts are pointing to their internal problems as the cause

According to analysts the devaluation of the Brazilian real is not due to the current foreign turbulence but to internal uncertainties and the upcoming October presidential elections.

“The (Brazilian) real was not devalued sixteen percent because of Turkey or other external reasons, it was because the rate of R$3.00 to R$3.30 (per US$1) was absolutely incompatible with the status quo of the Brazilian economy and the expressiveness of the country’s fiscal debt,” said Sidnei Moura Nehme, executive director at NGO.

At the same time, trouble signs continue to emerge here in the United States.

On Wednesday, we learned that Lowe’s is planning to shut down 99 Orchard Supply Hardware stores

The company said Wednesday that the 99 Orchard Supply Hardware stores that Lowe’s owns in California, Oregon and Florida, as well as a distribution center, will be shut down by the end of the fiscal year.

Orchard Supply Hardware has 4,300 employees. Ellison said in the earnings release that the chain’s workers will be given “priority status” if they apply for other jobs at Lowe’s and will also receive job placement assistance and severance.

If the U.S. economy really was in good shape, why would they be doing that?

Ultimately, most people out there realize on some level that our current economic situation is not sustainable.  Stock prices have become completely detached from reality, and we are enjoying a ridiculously high standard of living that has been fueled by the greatest debt binge that the world has ever seen.

We can steal from the future for an extended period of time, but eventually it will catch up with us.

When the stock market finally crashes, the mainstream media will treat it like a big surprise, but the truth is that it shouldn’t catch anybody off guard.  Key stock valuation ratios always return to their long-term averages eventually, and in this case stock prices are going to have to fall at least 40 or 50 percent before they begin to make sense again.

But as I noted earlier, our system is so fragile that we won’t be able to handle that kind of an adjustment.

Our system almost completely collapsed in 2008, but what we are facing is going to be much worse than that.  Most of the wealth of the country will be wiped out in the process, and it will be an exceptionally painful time for the American people.

This article originally appeared on The Economic Collapse Blog.  About the author: Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

5 Signs That Global Financial Markets Are Entering A Bear Market, And 11 Ways That You Can Get Prepared For The Chaos That Is Coming…

We haven’t seen carnage like this in the global financial marketplace in quite some time.  On Wednesday, U.S. stocks were down some, but things were much, much worse around the rest of the world.  Global banking stocks are plunging, emerging market stocks are cratering, and emerging market currencies continue their stunning decline.  This represents a dramatic change from the relative stability that we have seen throughout most of 2018.  It is almost as if someone flipped a switch once the month of August began, and the shakiness of global financial markets has many investors wondering what trouble fall will bring.  What we are witnessing right now is not a full-blown panic yet, but it definitely has the potential to turn into one.

The term “bear market” is being thrown around a lot lately, but a lot of people don’t understand what a “bear market” actually is.

A bear market is generally considered to be when we see a decline of 20 percent or more from the 52-week high, and after the carnage of this past week a lot of those thresholds are now being crossed.

It would probably be too early to call this a “global stock market crash”, but we are well on the way to getting there.  The following are 5 signs that global financial markets are entering a bear market…

#1 Global stocks have now fallen beneath all key moving averages.  Those key moving averages are important psychological thresholds for investors, and if we have a few more days like Wednesday we could see global financial markets go into full panic mode.

#2 European banking stocks have now officially entered a bear market, and all major European stock indexes are now red for the year.

#3 Global banking stocks are down a whopping 23 percent from the peak established earlier this year, and that means that they have officially entered a bear market.

#4 Emerging market stocks have fallen 20 percent from the peak, and that means that they are also now in a bear market.

#5 When demand for industrial metals falls, that indicates that an economic slowdown is coming.  On Wednesday, prices for industrial metals fell to their lowest level in almost a year, and “Dr. Copper officially entered a bear market.

If the financial carnage continues (and that is a big “if”), this could be the beginning of another financial crisis like we experienced in 2008, and that would almost certainly mean a crippling global recession.

And of course once the next global recession begins, it is likely to be more painful than we have ever seen before in modern history, because the global debt bubble is far larger than it has ever been before.

We live at a time of great global instability, and there are so many ominous warnings about our future.  A lot of people reach out to me for advice on how to get prepared for what is coming, and I hope to share quite a few tips in future articles.

Today, I would like to share with you 11 tips that my good friend Ray Gano shared with his readers in his most recent article

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1 – Get Out of Debt: The old saying, “the borrower is the servant of the lender”, is so incredibly true.  The key to insulating yourself from an economic meltdown is to become as independent as possible, and as long as you are in debt, you simply are not independent.  You don’t want a horde of creditors chasing after you when things really start to get bad out there.

2 – Find New Sources of Income: With the birth of The IRA, there simply is no such thing as job security anymore.  If you are dependent on a job (“just over broke”) for 100% of your income, you are in a very bad position.  There are thousands of different ways to make extra money.  What you don’t want to do is to have all of your eggs in one basket.  One day when the economy melts down and you are out of a job are you going to be destitute or are you going to be okay?

IF you need some ideas on what you can do, contact me and I can help.

3 – Reduce Your Expenses: Many Americans have left the rat race and have found ways to live on half or even on a quarter of what they were making previously.  It is possible – if you are willing to reduce your expenses.  In the future times are going to be tougher, so learn to start living with less today.

4 – Learn To Grow Your Own / Supplement Your Food: Today the vast majority of Americans are completely dependent on being able to run down to the supermarket or to the local Wal-Mart to buy food.  But what happens when the U.S. dollar declines dramatically in value and it costs ten bucks to buy a loaf of bread?  If you learn to grow your own food (even if is just a small garden) you will be insulating yourself against rising food prices. Another thing is to learn to hunt and fish. There is “low cost” food out there for the taking, you just need to assert yourself. (Low Cost = you still need to pay for hunting and fishing licenses.)

5 – Make Sure You Have A Reliable Water Supply: Water shortages are popping up all over the globe.  Water is quickly becoming one of the “hottest” commodities out there.  Even in the United States, water shortages have been making headline news recently.  As we move into the future, it will be imperative for you and your family to have a reliable source of water.  Some Americans have learned to collect rainwater and many others are using advanced technology such as atmospheric water generators to provide water for their families.  But whatever you do, make sure that you are not caught without a decent source of water in the years ahead.

6 – Buy Land: This is a tough one, because prices are high depending on where you are looking. If you are able to buy land when prices are low, that is going to insulate you a great deal from the rising housing costs that will occur when the U.S dollar does totally go into the tank.

7 – Buy Precious Metals: this is a no brainer, but it still amazes me how many people are not doing this. Right now silver is sitting at $14.41. That is a very affordable price and a price that everyone can afford.  We must start “paying ourselves first” and start pulling in these sort of assets.

The best place that I recommend is Renaissance Precious Metals. It is who I purchase from.

8 – Get Partially Off The Grid: An increasing number of Americans are going “off the grid”.  Essentially what that means is that they are attempting to operate independently of the utility companies.  In particular, going “off the grid” will enable you to insulate yourself from the rapidly rising energy prices that we are going to see in the future.  If you are able to produce energy for your own home, you won’t be freaking out like your neighbors are when electricity prices triple someday.

9 – Store Non-Perishable Supplies: Non-perishable supplies are one investment that is sure to go up in value.  Not that you would resell them.  You store up non-perishable supplies because you are going to need them someday.  So why not stock up on the things that you are going to need now before they double or triple in price in the future?  Your money is not ever going to stretch any farther than it does right now.

EXAMPLE – Toilet Paper

10 – Develop Stronger Relationships: Americans have become very insular creatures.  We act like we don’t need anyone or anything.  But the truth is that as the we see a socio-economic melt down we are going to need each other.  It is those that are developing strong relationships with family and friends right now that will be able to depend on them when times get hard.

11 – Get Educated And Stay Flexible: When times are stable, it is not that important to be informed because things pretty much stay the same.  However, when things are rapidly changing it is imperative to get educated and to stay informed so that you will know what to do.  The times ahead are going to require us all to be very flexible, and it is those who are willing to adapt that will do the best when things get tough.

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Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

A Quadrillion Yen And Counting – The Japanese Debt Bomb Could Set Off Global Panic At Any Moment

Shibuya Crossing in Tokyo, JapanHow much is 1,000,000,000,000,000 yen worth?  Well, a quadrillion yen is worth approximately 10.5 trillion dollars.  It is an amount of money that is larger than the “the economies of Germany, France and the U.K. combined“.  It is such an astounding amount of debt that it is hard to even get your mind around it.  The government debt to GDP ratio in Japan will reach 247 percent this year, and the Japanese currently spend about 50 percent of all central government tax revenue on debt service.  Realistically, there are only two ways out of this overwhelming debt trap for the Japanese.  Either they default or they try to inflate the debt away.  At this point, the Japanese have chosen to try to inflate the debt away.  They have initiated the greatest quantitative easing experiment that a major industrialized nation has attempted since the days of the Weimar Republic.  Over the next two years, the Bank of Japan plans to zap 60 trillion yen into existence out of thin air and use it to buy government bonds.  By the time this program is over, the monetary base in Japan will have approximately doubled.  But authorities in Japan are desperate.  They know that the Japanese debt bomb could set off global panic at any time, and they are trying to find a way out that will not cause too much pain.

Unfortunately, the only way that this bizarre quantitative easing program will work is if investors in Japanese bonds act very, very irrationally.  You see, the only way that Japan has been able to pile up this much debt in the first place is because they have been able to borrow gigantic piles of money at super low interest rates.

Right now, the yield on 10 year Japanese bonds is sitting at an absurdly low 0.76%.  But even with such ridiculously low interest rates, the central government of Japan is still spending about half of all tax revenue on debt service.

If interest rates go up, the game is over.

But now that the Japanese government has announced that it plans to double the monetary base, it would be extremely irrational for investors not to demand higher rates on Japanese government debt.  After all, why would you want to loan money to the Japanese government for less than one percent a year when the purchasing power of your money could potentially be halved over the next two years?

Amazingly, this is exactly what the Japanese government is counting on.  They are counting on being able to wildly print up money and monetize debt, but also keep yields on Japanese bonds at insanely low levels at the same time.

For the moment, it is actually working.  Investors in Japanese bonds are behaving very, very irrationally.

But if that changes at some point, we could potentially be looking at the greatest Asian economic crisis of all time.

And there are some very sharp minds out there that believe that is exactly what is going to happen.

For example, the founder of Hayman Capital Management, Kyle Bass, has been sounding the alarm about Japan for a long time.  He correctly predicted the subprime mortgage meltdown, and in the process he made hundreds of millions of dollars for his clients.  Now he believes that the next major crash is going to be in Japan.

According to Bass, the bond bubble in Japan is so large that once it begins to implode fear is going to start spreading like wildfire…

Remember, Japanese banks in general have 900% of their tangible assets invested in JGBs that are the most negatively convex instrument you can put into a portfolio. Assume for instance that a bank holds a 10 year bond yielding 80 basis points. A 100 basis point move will cost the JGB investor about 10 years of expected interest payments.

Think about the psychology of all the players and financial implications if rates do move 100 basis points. Think about the solvency of a nation which currently spends 50% of its central government tax revenues on debt service, half of which earns the lowest yields of any country in the world.

You can’t look at this as a simple question. You need to think about this as a multivariate equation. You have to think about the incentives and the fears of all the participants. And you need to think about the fiscal sustainability of the government.

If rates even rise by a full percentage point, it could start a stampede toward the exits that nobody in the entire world would be able to control…

I ran a survey of 1,009 Japanese investors where we asked: “If rates were to move up 100 basis points, would that engender more confidence and make you want to buy more JGBs?” or, “Would you take your money elsewhere, even if it were hamstringing your government’s ability to operate?” 8 – 9% of respondents that said that they would buy more bonds and almost 80% said they would run, not walk the other way.

For much more on this, you can watch a video of Kyle Bass discussing why Japan is doomed right here.

And of course Japan is not the only “debt bomb” that could potentially go off over in Asia.  As I mentioned in another article, the major problem over in China is the level of private debt…

In China, the big problem is the absolutely stunning growth of private domestic debt.  According to a recent World Bank report, the total amount of credit in China has risen from 9 trillion dollars in 2008 to 23 trillion dollars today.

That increase is roughly equivalent to the entire U.S. commercial banking system.

There is simply way, way too much debt in our world today.  Never before has there been so much red ink all over the planet at the same time.

Many in the mainstream media insist that this party can go on indefinitely.

But that is what they said about the housing bubble too.

Sadly, the truth is that every financial bubble eventually bursts, and this global debt bubble will be no exception.

I hope that you are getting prepared while you still can.

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