Later On

A blog written for those whose interests more or less match mine.

Uh-oh: Companies Are Stampeding to Buy Back Their Own Stock (Just Like Before the 2008 Crash)

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Interesting column in Wall Street on Parade by Pam Martens and Russ Martens. From the link:

. . . Yesterday, both the S&P 500 and the Dow Jones Industrial Average posted record high closing levels with Nasdaq closing above 5,000 – within spitting distance of its old high set 15 years ago. (Yes, it’s been a long tough slog for investors in the Nasdaq index.) And, accompanying this seemingly bullish news for stock investors is a startling assessment this morning of what’s going on behind the scenes with share buybacks from Lu Wang and Oliver Renick at Bloomberg News. Here’s the bullet points of their story:

  • Stock buybacks and dividends are eating up “almost all the Standard & Poor’s 500’s earnings”;
  • Even with “earnings estimates deteriorating,” corporations have announced “an average of more than $5 billion in buybacks each day.”
  • “Companies in the S&P 500 have spent more than $2 trillion on their own stock since 2009”;
  • Companies could be overpaying for their stock. “The S&P 500 trades at 18.9 times earnings, compared with an average of 16.9 since 1936, data compiled by Bloomberg and S&P show.”

Buybacks in an overpriced market when corporate insiders stand to make tens of millions of dollars as their stock options move deeper into the money, is a serious cause for worry. Wall Street On Parade reported in July of last year that the largest Wall Street bank, JPMorgan Chase, had spent $18 billion buying back its shares from 2010 through 2013. According to a quarterly filing with the SEC at that time, the company said “the Firm’s Board of Directors has authorized the Firm to repurchase $6.5 billion of common equity between April 1, 2014 and March 31, 2015.”

Our thoughts back then are the same as today: . . .

Written by LeisureGuy

3 March 2015 at 3:32 pm

Posted in Business

One Response

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  1. Reblogged this on Brian By Experience.

    Brian Dead Rift Webb

    3 March 2015 at 4:23 pm


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