9/6/2018 – Another mixed day with the Dow Jones up 20 points (+0.08%) and the Nasdaq down 72 points (-0.91%)

If you are a well researched bear, you might be wondering,  who the hell is buying this market? 

The answer shouldn’t surprise you.

Stock Buybacks Hit Record $680 Billion In The First Half

From a purely financial point, companies in the S&P 500 that have repurchased shares are expected to see a return on investment of about 6.4% this year, a percentage that falls below the past six rolling five-year periods as measured by Fortuna Advisors, a financial consulting firm that has examined buyback trends going back to 2007.

CEOs, CFOs and Treasurers know all of this, of course, but to them the real goal is simpler: to cash out as soon as possible, while using the company’s balance sheet to soak up any insider sales. If the stock goes up in the process, so much the better.

Gregory Milano, Fortuna’s CEO, summarized it best:  “The majority of capital deployed is going right back to shareholders and not reinvestment in businesses. If that’s the only thing you’re relying on, it’s going to end badly.”

Of course it will, but as we approach an absolutely ridiculous $1 trillion in buybacks – actually the annualized first half buyback total of $678 billion would imply over $1.35 trillion in 2018 buybacks – at least it will end with a bang.

Indeed.

We have discussed this before. It is a well known fact that corporates behave in the exact same fashion as retail investors do. That is, they buy at the top and sell at the bottom.

So, it shouldn’t come as a surprise that they are blowing their debt driven cash stock piles on stock buybacks in the market that is selling at the highest valuation level in its history. In other words, just another red flag that something terrible is just around the corner.

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