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INSTANT INSIGHT: Massive Corporate Buybacks, BOJ Firepower & PBoC Central Planning

Takeaway: Corporate Buybacks; U.S. #GrowthSlowing; The Lone BOJ Dissenter; PBoC Central Planning

INSTANT INSIGHT: Massive Corporate Buybacks, BOJ Firepower & PBoC Central Planning - earth

 

Below are a collection of interesting links and insights from today's news with analysis filtered through the Hedgeye macro lens. This installment discusses a recent record for corporate buybacks, U.S. #GrowthSlowing via Bed Bath & Beyond, BOJ central planning and China's yuan policy and shadow stimulus.

 

Enjoy! 

 

The 2nd-Largest Quarter Of Corp Buybacks Ever

"Companies in the S&P 500 spent $161.4 billion buying back shares in the first quarter of 2016, the second-largest amount on record, supporting stock prices amid the index’s early-year drop," the Wall Street Journal reports. Why are companies buying back shares? Simple. "As Earnings Slow, companies lever up and buy back stock to hit EPS targets that determine executive bonuses," Hedgeye CEO Keith McCullough writes.

 

Another U.S. #GrowthSlowing Casualty

"In other news, Bed Bath & Beyond (BBBY) is the latest US #ConsumerSlowing report (post market close)," McCullough wrote. BBBY posted a sales decline and missed earnings estimates as foot traffic slowed and increasing competition from Amazon.com hurt results. 

 

The Lone BOJ Dissenter Rips On Negative Rates

"The additional (positive) effects of quantitative and qualitative easing have been diminishing," Takahide Kiuchi told business leaders at a conference today. "On the other hand, numerous side effects of QQE seem to be increasing steadily," he said. Kiuchi has said before that the BOJ's sustained ultra-low interest rates and the negative rates decision had destabilizing effects on the bond market and hurt the central bank's credibility.

 

In other Japan-related Central Planning News

Is the BOJ holding back its bond buying firepower for after today's Brexit vote? Maybe. Bloomberg reports:

 

"Up to now, the Bank of Japan has tended to conduct bond-purchase operations -- known locally as “rinban” -- on the days following a government auction. Not this time. The Finance Ministry had sold about 400 billion yen ($3.8 billion) of Japanese government bonds with tenors of 20, 30 and 40 years on Friday, but come Monday, the central bank wasn’t buying.”

 

With yields on Japanese government bonds touching record lows last week, perhaps the BOJ is just holding off and letting the market ride for a bit? 

 

China, Yuan & Shadow Stimulus

According to China's state-owned media outlet Xinhua, the People's Bank of China is making strides toward "increas[ing] the investability of the renminbi." A seperate Xinhua article this week explains:

 

"The central bank has stressed that it will stick to market-oriented reforms and increase the yuan's exchange rate flexibility, according to the commentary 'Understand the yuan's fluctuations.'

 

'What needs to be avoided is not fluctuations but possible risks caused by them,' said the article, adding that while risks do exist, there is no basis for long-term depreciation of the yuan.

 

'We should make sound plans to respond to any risks, rather than hesitating over risk concerns,' it read."

 

Another interesting read on China, check out the FT's piece "China deploys state enterprises to economic stimulus effort." Here's the key takeaway from the chart below. Essentially, China's state-owned entities are doing the government's bidding to stimulate its slowing economy.

 

INSTANT INSIGHT: Massive Corporate Buybacks, BOJ Firepower & PBoC Central Planning - china investment

 


Whatever It Takes: ECB To "Examine" Buying Greek Sovereign Bonds (& Other Junk)

Takeaway: ECB to "examine" the purchase of Greek government bonds, which still carry a junk rating, "at a later stage."

Whatever It Takes: ECB To "Examine" Buying Greek Sovereign Bonds (& Other Junk) - greece

 

The Mario Draghi-led ECB is already buying junk bonds so why not add Greek sovereign bonds to the list too?

 

That's the latest bit of central planning hocus pocus from the ECB. Yesterday, the central bank granted Greek banks access to cheap funding, after sidelining them for more than a year due to debt negotiations.

 

Draghi & Co. would also "examine" the purchase of Greek government bonds, which still carry a junk rating, "at a later stage":

 

"The Governing Council will examine possible purchases of Greek government bonds under the public sector purchase programme (PSPP) at a later stage, taking into account the progress made in the analysis and reinforcement of Greece’s debt sustainability, as well as other risk management considerations."

 

Whatever It Takes: ECB To "Examine" Buying Greek Sovereign Bonds (& Other Junk) - greece owe everyone else

 

Why not?

 

The ECB is already purchasing corporate junk bonds. Here's Bloomberg reporting from earlier this month when the ECB first began buying corporate bonds:

 

"Purchases on the first day included notes from Telecom Italia SpA, according to people familiar with the matter, who aren’t authorized to speak about it and asked not to be identified. Italy’s biggest phone company has speculative-grade ratings at both Moody’s Investors Service and S&P Global Ratings. The company’s bonds only qualify for the central bank’s purchase program because Fitch Ratings ranks it at investment grade."

 

And even if a bond is universally downgraded to junk by all ratings agencies the ECB can hang on. Here's more from an ECB press release:

 

"Will the Eurosystem sell its holdings of bonds if they lose eligibility? For example, if they are downgraded and lose investment grade status?

The Eurosystem is not required to sell its holdings in the event of a downgrade below the credit quality rating requirement for eligibility."

 

this is Draghi's "whatever it takes" on steroids.  


2 Charts: A Closer Look At The Fed's "Reverse Socialism"

Takeaway: "Thank God for the Federal Reserve and all its reverse socialism, otherwise where would income inequality be without it."

2 Charts: A Closer Look At The Fed's "Reverse Socialism" - Fed Up cartoon 03.22.2016

 

In a bizzarely tangential exchange yesterday between Republican Representative Scott Garrett and Fed head Janet Yellen, Garrett accused Yellen of lining Wall Street pockets and worsening income inequality.

 

“Why do you see a need to benefit Goldman Sachs?” Garrett asked.

“I’m sorry, we are not trying to benefit the rich,” Ms. Yellen responded, reiterating that, since the recession ended in 2009, 14 million new jobs have been created.

“Excuse me, I have the floor,” Mr. Garrett interrupted irrately.

 

Garrett didn't press the Fed chair and veered off in another direction entirely but, despite his opportunistic invocation of populism, the Congressman's point is taken. 

 

"Thank God for the Federal Reserve and all its reverse socialism, otherwise where would income inequality be without it," Hedgeye Senior Macro analyst Darius Dale wrote wryly yesterday, in response to a Wall Street Journal article that showed a significant rise in upper-middle class wealth. Unsurprisingly, middle and lower class family wealth has stagnated or declined.

 

As you can see in Dale's charts below, the Fed's easy money has actively promoted this trend:

 

Click images to enlarge 

2 Charts: A Closer Look At The Fed's "Reverse Socialism" - darius chart 6 23

 

2 Charts: A Closer Look At The Fed's "Reverse Socialism" - darius chart 6 23  2

 

It's a truly sad outcome.

And yet more proof of the Fed's flawed policies.


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Daily Market Data Dump: Thursday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Thursday - equity markets 6 23

 

Daily Market Data Dump: Thursday - sector performance 6 23

 

Daily Market Data Dump: Thursday - volume 6 23

 

Daily Market Data Dump: Thursday - rates and spreads 6 23

 

Daily Market Data Dump: Thursday - currencies 6 23


McCullough: Chasing European Stocks? Don't Look At This Sobering Data

Takeaway: Investors buying the pop in European equities will have deal with unequivocally bearish data that doesn't go away post today's Brexit vote.

McCullough: Chasing European Stocks? Don't Look At This Sobering Data - eu ref 

 

I guess no Brexit was the 2016 Global Equity bull market catalyst all along!

 

The pound tapped $1.49 this morning and that’s one mother of a move in the context of where GBP/USD has been for the last 6 months – on my immediate-term signal, that’s pricing in a triple-no-exit! I’m going into this with no FX position (sorry, can’t build my research firm on coin tosses) other than long Gold (risk range 1253-1306/oz).

 

 

Meanwhile, the FTSE is up +1.4% to 6349 with a refreshed immediate-term risk range of 5819-6403 so the asymmetry from here is to the downside; same thing with the DAX on a risk range of 9370-10331 – if they leave, many Global Equity markets will resume their draw-downs (and crashes) from their 2015 cycle peaks – if they remain, they probably sell on the news anyway.

 

Here's the unequivocally bearish data that doesn't go away post today's Brexit vote:

 

 

And imagine what happens to these stock market chasers if they vote to leave? No blaming machines...

 


CHART OF THE DAY: Brexit: 'Brits Don't Quit!'

Editor's Note: Below is an excerpt and chart from today's Early Look written by Hedgeye Director Matthew Hedrick. Click here to learn more.

 

"... But will Brits actually vote themselves out of the EU?  We’ll reiterate here that we expect the Remain camp to prevail, but as the aggregate “Poll of Polls” below shows, it’s a split race (50/50).  In addition, recent results of individual polls show there’s a very sizable number of undecided voters, representing some 6% to 13%, depending on the poll, who we think will tip the balance marginally to Remain."

 

CHART OF THE DAY: Brexit: 'Brits Don't Quit!' - Brexit EL 1


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