Have you ever wondered what in the world is keeping this incredibly overpriced and highly speculative market at today’s levels?
Here is one possible explanation…..
Huge New Prop under the Stock Market is a One-Time Affair
That $173.6 billion in share repurchase plans includes the record-breaking mega-announcement from Apple that it would buy back $100 billion of its own shares. Here are the top five that account for $134.3 billion, or 77% of the total:
- Apple: $100 billion
- Micron: $10 billion
- Qualcomm: $8.8 billion
- Adobe: $8.0 billion
- T-Mobile: $7.5 billion
To put that May total of $173.6 billion – these are just announcements of planned repurchases sometime in the future that may never fully transpire – into perspective: In Q1, total actual share buybacks reported by the S&P 500 companies amounted to $178 billion, an all-time record. That averages out to “only” $59.3 billion a month on average, compared to the announcements in May of $173.6 billion.
The author goes on…..
The note TrimTabs provided as to why these share buybacks are suddenly blowing off the charts is key: The corporate tax law has changed concerning the “repatriation” of “overseas cash” that represents many years of untaxed profits invested mostly in US Treasuries and corporate bonds. This “repatriation” is a one-time affair. Once this limited “overseas cash” has been “repatriated” and spent on share buybacks, dividends, and executive bonuses, it’s gone. And then what?
These immensely overvalued shares will then have to find real buyers.
But for now, companies are selling their Treasuries and corporate bonds, which have taken a beating recently, and are using the proceeds, while they last, to buy back their own shares at historically overvalued prices. This gives the market, that has been struggling since January 26, some crash insurance, but with an expiration date.
And there you go boys and girls.
As I have said so many times before, history teaches us that corporates always behave as retail investors do. That is, they buy at the top and sell at the bottom. In that regard their present stupidity makes perfect sense.
I will bet you my left kidney that their decision to purchase own stocks at today’s valuation levels will look very foolish when the stock market finally cracks and drops 50%+. If you would like to find out exactly when that will happen, please Click Here
