The Corporate Buy-Back Trend – Right on Cue

21CAPDSPL2

History repeats not merely because human emotions never change, it seems we end up with the same decision process that leads to the same trends. People just love raining on the current parade as stocks rally when they missed the entire boat to begin with. The bearishness with the new highs in the S&P 500 has brought a new twist to blame – corporate buy-backs to fake the earnings per share. Nothing seems to ever be real, so they have to constantly find something to blame for their mistakes in opinion that is masquerading as analysis.

I hate to say I told you so, but I told you so. It is not that I am wiser or smarter, I just did my homework rather than try to come up with excuses for being wrong.

I have said it countless times – history is a catalogue of solutions – but also explanations. The displacement of cash from stocks to bonds appeared in the Roaring 1920s after the Real Estate Crash in Florida (yes real estate crashed first then too). This trend flipped for the last 6 months to make the high, and then flipped back to try to support the market. So this is not MY OPINION of what I “think” should happen, this is WHAT happened. Part of the whole rally into 1929 (1) caused in part by a “shortage” in stock, and (2) then this was accelerated by the corporate buy-back trend then as well. Sorry it is not another bearish conspiracy to hide the truth – it’s right on cue.

Mausoleum Glenwood

Corporates have been issuing bonds and I have been advising them to do so why? Not to mask their Earnings Per Share, but because interest rates will rise and you better lock in whatever you can right now. There is a shift in capital from munis to corporate bonds and this will further advance as geopolitical events unfold pushing rates higher. Then there will be the last phase where capital shifts from bonds to stock. Sorry – no conspiracy here – just facts.

Corporates bought back stock when there was excess cash during the Roaring 1920s. Into the top, everything that could be dreamed of for a corporate share was issued right down to mausoleums – some of the last shares sold into the highs because guess what – there was too much money (capital inflows) and not enough stock. Corporates then made the mistake of buying back their shares during the crash to try to support them as did Japan and many went bankrupt because of that. History is ALWAYS better than opinion.

NYC-Myopic View

Stocks have been rising to record highs and you get the typical people at this point in the cycle who think they are smart and predict that the party will end almost any day. These people still see only the myopic view of the United States to the exclusion of the world as if there is no international capital flows to be concerned with – EVER! Honestly, everything these pretend analysts look at and talk about is simply to advance their opinion in purely domestic viewpoint blind to how the world out there exists and functions.

You will find these pretend analysts focus still on the Fed’s ongoing monetization of tens of billions buying bonds each month as if this is the reason for the rally in stocks. HELLO! Japan kept interest rates near zero and bought back bonds through their takeover of the Japanese Postal Savings Fund that the bankrupted using more than $1 trillion when a trillion use to mean something. That NEVER supported the Nikkei. You cannot sight reasons for something without doing your homework. These are “opinions” only that are never tested amounting to just excuses. Excuses to justify wrong opinions are never analysis. As soon as you ASSUME some theory, you are doomed and cannot ever reach the truth because you are trying to prove your theory, not test it.

Some of these pretend analysts are now attributing the rally to the missing piece they just discovered in this equation known as corporate buybacks. They have spun this into the new sinister conspiracy excuse as to why they were wrong again. They now say that this proves it is a false flag because as corporates have been issuing high-grade bonds since last year. They then spin this stating simply that corporates are using the proceeds to buyback their shares in record amounts and this is just a cover-up to hide the decline in actual cash earnings by lowering the amount of shares outstanding to make their Earnings Per Share rise and “appear” bullish.

This latest conspiracy to explain why the rally in stocks is not REAL, it not much different from the thinking of the Goldbugs who kept claiming the decline was not real because it was some manipulation. Well, even the Swiss had to report they lost $17 billion on their gold but according to the Goldbugs, they should say it’s not really a loss, just an illusion.

Marx-Keynes

Market trends are ALWAYS real because nobody can manipulate the trend – not even government. Manipulations are short blasts within the trend – but you cannot shorten a bear market or extend a bull market – Japan tried and that was the goal of Marxist-Keynesianism. That is the failure of the “New Economics” of the New Deal that Paul Volcker wrote about in his Rediscovery of the Business Cycle. Even Keynes before he died admitted his was wrong and said he hope’s Adam Smith’s Invisible Hand would save Britain.

So why is it that people will always try to argue that the current trend in motion is:

  • (1) false and is not real, or
  • (2) it will never end?

Linear-Dynamic

I call it the Paradox of Linear Reasoning to Dynamic Thinking

This will be a handout at the Cycle of War Conference March 21st