Tuesday, 10 January 2017 18:03

What Happens When Rates Rise While the S&P 500 Relies on Cheap Credit To Boost EPS? Featured

So, the stock market, bond market and real estate markets are all at all-time highs. Everything is Awesome! You know better than that. You see, when the bond market wakes up (that has happened already, btw), the resultant higher rates will drag the rest of Wonderland back into reality. Where do you think those steadily increasing EPS counts have been coming from? The cheapest credit every simply tempts management to do some of the dumbest things every....

thumb Bonds fuel stock buybacks4

Keep in mind how much of this share buyback capital is debt derived, then take not or the red highlights that I made below. More than a fifth of the S&P 500 have literally spent more on buying back their shares then they have earned. If that's not irresponsible manipulation of your share price, I simply don't understand the concept. This activity is actually waning believe it or not. That may sound like a good (or better) thing, but it's not. It means the kool Aid machine is running out of sugary red stuff.

This activity has reduce the share count of the S&P 500 buy 1.7%, and that's just for the quarter. True  EPS manipulation. This means that you can literally make a lot less money but have an increase in EPS, with none (of those that bother to read or count) the the wiser!

Bonds fuel stock buybacks

Shareholder distributions make up 117% of earnings.

More than a fifth of S&P 500 companies spent more on share buybacks than they generated in free cashflow.

About a 7th of the S&P 500 decreased their sharecount by more than 5% through share buybacks. Keep in mind that a record amount of this has been funded by borrowing at rock bottom, yet risisng interest rates. Low interest rates in the US may be gone, but that debt isn't. You know what else is gone? The ability to generate old fashioned earnings and cashflow without financial gimmickry, tricks and sleight of hand.

Is there any way, at all... To spin that as a good thing?! Trump will take office this year, within 360 days of a total meltdown.


thumb Bonds fuel stock buybacks2


Bonds fuel stock buybacks3

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Last modified on Tuesday, 10 January 2017 19:09

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