Market Distortations: Buybacks and Dividends

By: Gordon Long | Tue, Apr 1, 2014
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Market Distortations: Buybacks and Dividends

With Lance Roberts & Gordon T Long

23 Minutes, 31 Slides

Corporate stock buybacks and dividends are great strategies to drive up stock prices and rewards shareholders, but there is a dangerous downside when this is primarily the result of temporary cheap money and 'manufactured earnings' from creative accounting magic.

Lance Roberts and Gordon T Long with the aid of 31 charts highlight why this is happening, how reported earnings are disconnected from the underlying economy and the risk to investors that has emerged as a consequence. Lance categorizes this period as the biggest 'reverse Robin Hood effect' in history with wealth over the last 5 years being transferred from the middle class to the upper wealthy class.

Stagnate sales growth in the top line is a direct result of low levels of corporate capital. The capital investments being made are primarily targeted at cost reductions in labor. With labor at historic lows, as a percentage of record profits, corporations may be ill prepared to maintain current levels of earnings, dividends and buybacks.

In this wide ranging conversation on the future of buybacks and dividends, the subjects explored include:

Consumption doesn't create a strong economy. Wealth doesn't come from consumerism.

Wealth is created as a result of capital spending which has plummeted!

Both Lance and Gord believe strongly that more deflation is still ahead before broad based inflation takes hold. Money velocity continues to fall with wage inflation frozen and commodity price inflation showing only in pockets.

The global economic slowdown we are presently seeing will put pressure on corporate earnings and their ability to maintain current buyback and dividend levels.

Lance warns of risk and how important and little appreciated "Loss of Capital" and "Loss of Time" is to most individual investors.

NOTE: 24 hours after this show was taped, Trim Tabs announced that new stock buybacks in Q1 2014 fell to $134.4B from $214.4B in Q4 and were the lowest in 5 quarters.

"Corporate actions have turned less supportive of stock prices. The decline in the volume of buybacks is a cautionary sign, as buyback volume and the S&P 500 have a high positive correlation."

Trim Tabs Chief Executive David Santschi


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Gordon Long

Author: Gordon Long

Gordon T. Long
Publisher - LONGWave

Gordon T. Long

Gordon T. Long has been publically offering his financial and economic writing since 2010, following a career internationally in technology, senior management & investment finance. He brings a unique perspective to macroeconomic analysis because of his broad background, which is not typically found or available to the public.

Mr. Long was a senior group executive with IBM and Motorola for over 20 years. Earlier in his career he was involved in Sales, Marketing & Service of computing and network communications solutions across an extensive array of industries. He subsequently held senior positions, which included: VP & General Manager, Four Phase (Canada); Vice President Operations, Motorola (MISL - Canada); Vice President Engineering & Officer, Motorola (Codex - USA).

After a career with Fortune 500 corporations, he became a senior officer of Cambex, a highly successful high tech start-up and public company (Nasdaq: CBEX), where he spearheaded global expansion as Executive VP & General Manager.

In 1995, he founded the LCM Groupe in Paris, France to specialize in the rapidly emerging Internet Venture Capital and Private Equity industry. A focus in the technology research field of Chaos Theory and Mandelbrot Generators lead in the early 2000's to the development of advanced Technical Analysis and Market Analytics platforms. The LCM Groupe is a recognized source for the most advanced technical analysis techniques employed in market trading pattern recognition.

Mr. Long presently resides in Boston, Massachusetts, continuing the expansion of the LCM Groupe's International Private Equity opportunities in addition to their core financial market trading platforms expertise. is a wholly owned operating unit of the LCM Groupe.

Gordon T. Long is a graduate Engineer, University of Waterloo (Canada) in Thermodynamics-Fluid Mechanics (Aerodynamics). On graduation from an intensive 5 year specialized Co-operative Engineering program he pursued graduate business studies at the prestigious Ivy Business School, University of Western Ontario (Canada) on a Northern & Central Gas Corporation Scholarship. He was subsequently selected to attend advanced one year training with the IBM Corporation in New York prior to starting his career with IBM.

Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

The information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that Mr. Long may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or recommendation you receive from him.

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