• 5 hours Toyota Tests Solar-Powered Prius
  • 23 hours Why The Gold Rally Flatlined
  • 1 day The Uranium Sector Can’t Catch A Break
  • 2 days Upcoming Fed Meeting Has Investors On Edge
  • 2 days Global Gold Sector Outlines Responsible Mining Principles
  • 3 days China’s Giant Vampire Fund Loses $120B
  • 3 days McDonalds To Roll Out Robot Drive-Thru Clerks
  • 3 days Savvy Investors Are Betting Big On This Little Data Company
  • 4 days How The Government Is Wasting Tax Money This Year
  • 4 days Supply Concerns Halt Expansion On Tianqi Lithium Plant
  • 4 days The World’s Biggest IPO Is Almost Here
  • 5 days The Relatively Of Money And Happiness
  • 5 days Wall Street Unfazed By Recession Fears
  • 5 days SoftBank Urges WeWork To Pause IPO Plans
  • 6 days Anti-Aging Market To Hit $55 Billion
  • 6 days JPM, Morgan Stanley Take Advisory Roles In Aramco IPO
  • 6 days Are Bonds In A Bubble?
  • 7 days The Unknown Media Giant Taking The World By Storm
  • 7 days From Millennial To Millionaire With One Simple Trick
  • 8 days The 5 Most Expensive Art Pieces Ever Sold
The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

Billionaires Are Pushing Art To New Limits

Billionaires Are Pushing Art To New Limits

Welcome to Art Basel: The…

Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

John Rubino

John Rubino

John Rubino edits DollarCollapse.com and has authored or co-authored five books, including The Money Bubble: What To Do Before It Pops, Clean Money: Picking Winners…

Contact Author

  1. Home
  2. Markets
  3. Other

Corporations - And Corporate Execs -- Fall Out Of Love With Their Shares

It's no secret that one of the main things propping up the US stock market has been corporations' willingness to buy back their own shares with borrowed money. The following chart illustrates the rather amazing correlation between share repurchases and share prices.

Stock Buybacks

This was obviously a short-lived strategy, one that would end when companies got so leveraged that borrowing more started to look pathological rather than wise. And that time may have come:

U.S. Buyback Announcements Tumble to a 2012 Low

(Bloomberg) - Stock buybacks appear to be slowing down, suggesting either corporate America's outlook has dimmed, stock valuations have become prohibitively high or, most optimistically, that companies are starting to listen to investors and put funds toward other uses.

Buybacks announced for the second quarter's earnings season between July 8 and August 15 totaled an average of $1.8 billion a day, the lowest volume in an earnings season since the summer of 2012, according to TrimTabs Investment Research.

Share repurchases have been a key driver of this year's stock market rally, despite a notable deceleration relative to to the same period in 2015. In the first seven months of 2016, buybacks totaled $376.5 billion, according to TrimTabs. That's down 21 percent from $478.4 billion in the first seven months of last year. Equity buybacks last week totaled just $2.6 billion, while record highs in U.S. stocks triggered an increase in new equity offerings.

"The reluctance to pull the trigger on share repurchases suggests corporate leaders are becoming less enthusiastic about what they see ahead," David Santschi, chief executive officer of TrimTabs, said in a press release on Tuesday. That means "buybacks aren't likely to provide as much fuel for the stock market as they have in the recent past."

But wait, there's more. It seems that corporate insiders understand the upward pressure they've exerted with all their leveraged buying - and that without it many stocks are sitting on some serious air pockets. So in the best tradition of the 1%, they're sticking their remaining shareholders with that eventual bill by dumping their own shares at a record pace:

Corporate insider selling surges as market hits record

(CNBC) - Corporate insiders are taking profits as U.S. equities rise to record levels, according to the new Vickers Weekly Insider Report from Argus Research.

Based on data that examines the ratio between buying and selling among corporate executives, the rate of net insider selling reached the highest level since June 2015. That surge preceded a previous market high when the Dow was pushing over 18,000 for the first time ever, according to Richard Cuneo, senior vice president of operations at Argus Research.

A crucial sentence from the first article: "Equity buybacks last week totaled just $2.6 billion, while record highs in U.S. stocks triggered an increase in new equity offerings." So not only are companies buying fewer shares, they, along with their insiders, are starting to sell.

The result of this change in the supply/demand calculus should, other things being equal, be lower share prices. Which would vindicate the lengthening list of heavy hitters (Gross, Soros, Icahn) who have gone bearish lately.

 

Back to homepage

Leave a comment

Leave a comment