The CEOs of the biggest corporations in America are Ivy League educated MBAs with the common sense of a nitwit. Did they ever hear the phrase – buy low, sell high? Evidently not. These boneheads just completed purchasing $500 billion of their own stock at all-time record highs. The PE of the market has only been higher twice in history – 1929 and 2000. Do they pay these idiots millions of dollars to purposely piss away shareholder wealth?
The chart below details the pure and utter stupidity of corporate CEOs. The only time in history when they purchased more of their own stock was in 2007, prior to the 50% crash in stock prices over the next 16 months. To understand the true brainlessness of these arrogant hubristic assholes, you have to look at 2009. In the year where stock prices were 50% lower than one year before, these titans of finance bought back the LOWEST amount of stock in the last thirteen years. These morons continuously buy high and sell low. The previous peak in stock buybacks was 2000. That worked out well for stockholders too.
And now for the cherry on top. Don’t believe the bullshit about corporate balance sheets with record levels of cash. Corporate debt levels are at all time highs. Guess what they used the debt for? That’s right. They borrowed to buy back their own stock at all-time highs. Fucking brilliant!!!!
Luckily their disgusting level of compensation is based on Earnings per share. Guess what goes up automatically when you buy back your own shares? With less shares, EPS is boosted higher. These were the same CEOs begging to be bailed out by the taxpayer in 2009. When this farce blows up in the near future and their companies go into the toilet again, these idiots will declare that no one could have seen this coming.
The idiocy and fecklessness of these CEOs never grows old.
$500 Billion In 2013 Corporate Buybacks: Half Of QE
Submitted by Tyler Durden on 01/06/2014 08:38 -0500
Everyone knows that the Fed, through the bank excess reserves/cash deposit pathway, participated in indirectly purchasing some $1 trillion in risk assets in 2013 through POMO – a process that many have confused with economic recovery. It is also known that corporate stock buybacks have managed to keep S&P500 EPS rising by removing the total number of shares outstanding (and thus lowering the S in EPS in a world where absolute E stubbornly refuses to grow): after all, someone has to keep those activist shareholders happy or else they release unpleasant letters about corporate CEOs.
However, what may not be known is just how large the total amount of corporate buybacks in the past year was. The answer: the second highest in history, just shy record of 2007 (when there was no additional $1 trillion in stock purchases coming from the Fed/Primary Dealer complex), amounting to $500 billion (even if non-US buybacks have been a tiny fraction of US).
Presented otherwise, corporations injected roughly half of the total POMO cash used by the Fed to push the S&P straight-line higher.
For the sake of stocks, and with QE tapering, let’s hope that this critical buyer remains in the market or else the tapped out retail investor may have a tough time to keep the S&P at its now more expensive than 2007 level for long.
One maybe would consider that they purposely have driven up the price of their own stocks in order to cash out their own positions prior to the market’s collapse. What’s the latest data on insider selling?
Meanwhile, in other parts of surreality…
JPMorgan will pay $2 billion to settle a criminal investigation into its role in the Bernie Madoff Ponzi scheme, according to reports this morning in The New York Times and The Wall Street Journal. That price tag will bring the total amount that the bank has paid out to settle government investigations this past year to a whopping $20 billion. Notably, JP Morgan will again avoid a criminal indictment this week, but will still be slapped with what’s called a “differed prosecution agreement,” a first for a U.S. bank. JPMorgan’s stock is unchanged in premarket trading.
Do they mean deferred, or differed?
FAIL:
Facebook up 100% last 12 months
Gate made 16 billion last 12 months
Boy am I glad I bought 5,000 shares of each last year.
Figures. This would go down as one of the largest frauds in history, if we had anyone other than foxes watching the hen house.
And they did it with QE money — taxpayer dollars of children not yet born.
I wonder what all the shareholders, who feel so “wealthy” now that their stock portfolios are soaring, are going to do when the fraud comes to light. If it ever comes to light.
The price to earnings ratio of many companies just seems outrageous. Why would I spend $57 on a share of Facebook so that I could earn .20? How does that make sense? The P/E ratio of the Russell 2000 is now 87:1
With P/E’s like that, the only buyers left are the corporations themselves.
Debt counts as a tax deductible expense therefore increases cash flow and EPS. Where as issuing more stock to raise capital does not.
Of course we would expect more borrowing with ultra low interest rates. However, it shows an act of deprevatity that borrowing is not being used to expand future business opportunities (higher risk) but rather borrowing to buy back shares(lowere risk)
End the corporate tax rate or find a way that paying devoid ends to share holders aren’t penalized . And this absurdity ends.
“Boeing announced its biggest cash payout in history, with plans to implement a $10 billion stock buyback and increase its quarterly dividend by 50 percent. The company is expected to announce record profits for its commercial unit in 2013.”
Balance sheet bingo.
End the corporate tax rate or find a way that paying devoid ends to share holders aren’t penalized . -Mark
Whutt? These are after tax profits, Actual Capital. Its just Q shinola. Sure the shareholders are pissed. But this is just a rational to end corporate tax. Not that I am against that.
Just be honest about the motives.
Corporations RAISE capital to fund expansion.
To increase debt loads to buy back shares is a naked admission that the firm has no good use for its capital in furtherance of its core business.
If this is not an admission that we’ve reached complete saturation and overcapacity, what is?
At some point, even if the Fed is giving away brand new Jaguar automobiles (using Prechter’s example) people look at their lawn (where Jaguars are already piled up) and yell NO MORE!!
An economy that borrows to increase capacity eventually generates a curve where aggregate debt service absorbs every spare erg of production. At that point, the Fed can offer infinite credit at 0.00001% interest and people simply don’t want it, can’t digest it, etc.
We’re there.
If CEOs have been selling their own shares as their companies have been acquiring they may not be as quite as stupid as they appear. The S&P chart has been rising at a greater than forty-five degree angle meaning that it’s a distribution waiting to happen. It’s not a matter of if but when. The sell-off will be dramatic but it won’t occur all at once. A drop of at least ten percent will signal that the process has begun. The sharply rising five year S&P trend line and the corresponding step-pyramid like decline in the price of gold over roughly the same period of time look strangely artificial to my eye. Deep pockets have been going all out to orchestrate a grand illusion but it can’t go on forever.