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Afraid Of All-Time Highs? WSJ Says Never Fear, Buybacks Are Here!

Takeaway: Companies in the S&P 500 spent $166.3 billion on share buybacks during the first quarter. That marked a new postrecession high.

Afraid Of All-Time Highs? WSJ Says Never Fear, Buybacks Are Here! - wsj never fear

 

The above is the latest permabull headline from the Wall Street Journal arguing that the buyback boom will live on and continue to stoke stocks.

 

Hang on a second...

 

That's worth parsing. The article suggests valuations are cheap and highlights academic studies which show shares of companies that buy back stock outperform the broader market by 12% over the next four years. 

 

so ... Can companies keep this buyback game going?

 

Good question. According to FactSet:

 

"Companies in the S&P 500 spent $166.3 billion on share buybacks during the first quarter, which marked a new postrecession high. Since 2005, only Q3 2007 produced a larger amount of buybacks ($178.5 billion). Dollar-value buybacks in Q1 represented a 15.1% increase in spending from the year-ago quarter, and a 15.6% jump from Q4. This breakout in the first quarter of the year comes amid somewhat of a stabilization period for buybacks since the middle of 2014. With that said, buyback spending still remained at very high levels for the index during this period."

 

Afraid Of All-Time Highs? WSJ Says Never Fear, Buybacks Are Here! - buyback S P

 

Consider peak buybacks in the context of net income and free cash flow...

 

FactSet writes:

 

"At the end of the first quarter, 146 companies in the S&P 500 spent more on buybacks in the trailing twelve months than they generated in earnings. This marked the seventh highest total going back to 2005... At the end of the first quarter, trailing twelve month buybacks made up 59.6% of free cash flow, which was a 6% increase year-overyear."

 

In other words, companies are increasingly buying back stock at the expense of long-term investment in their business. As Hedgeye U.S. Macro analyst Christian Drake points out on The Macro Show yesterday:

 

"If you have record repo activity at all-time highs in equities, pushing on 8 years into an economic expansion maybe you get paid in the short term. But what do you think of that in terms of long-term value creation?"

 

It's a good question to ponder as permabulls shout "buy, buy, buy" the all-time high.

in other words, we're sitting this one out.


The Keynesian Chorus Sings As Krugmania Overtakes Japan

Takeaway: "Krugman calls for 'a big burst of government spending and maybe also cash donations.' Godspeed to free-market capitalists."

The Keynesian Chorus Sings As Krugmania Overtakes Japan - Japan cartoon 05.02.2016

 

The Keynesian chorus is getting awfully Loud these days.

 

Paul Krugman joined Ben Bernanke in calling for helicopter money yesterday. Here's the word via Bloomberg:

 

"Japan should raise its inflation target to 4 percent and embark on a large but temporary fiscal stimulus to boost prices in the economy, Nobel laureate Paul Krugman said.

 

Speaking at a conference on Thursday in Singapore, Krugman called for 'a big burst of government spending and maybe also cash donations,' though authorities don’t necessarily need to adopt a strategy that involves 'helicopter' money, he said.

 

'Japan needs to get that inflation rate convincingly high,' Krugman said, adding that worrying about the 'longer-term budget outlook needs to be put on hold.' The Bank of Japan’s current target is 2 percent and consumer prices excluding fresh food, a key benchmark for the BOJ, have fallen for three straight months."

 

As Hedgeye CEO Keith McCullough wrote earlier today, "Krugman calls for 'a big burst of government spending and maybe also cash donations.' Godspeed to free-market capitalists." In other words, Japan has been pulling out all the stops for some time now to no effect.

 

Investors are voting with their feet. Take a look at the chart of Japanese equities over the past year:

 

 

The central planning #BeliefSystem is breaking down.


A Takeaway From Our Institutional Call on Agrium | $AGU

Takeaway: Shares of Agrium have remained comparatively resilient in 2016, a trend which we expect to reverse in 2H16.

A Takeaway From Our Institutional Call on Agrium | $AGU - agu present 

 

Hedgeye analysts Jay Van Sciver and Ben Ryan hosted an institutional call on Agrium (AGU) earlier this week. Here's the key takeaway:

 

Shares of Agrium have remained comparatively resilient in 2016, a trend which we expect to reverse in 2H16. As Agrium enters the back half of the year, wholesale margins are likely to see pressure amid lower fertilizer prices and higher input costs. While 1H16 retail margins benefited from early spring 2016 season planting and delayed fall 2015 nutrient application, such support should fade in 2H.

 

A Takeaway From Our Institutional Call on Agrium | $AGU - agu chart

 

KEY topics of discussion:

  • Broader Consideration of Retail Cyclicality: Product pricing, margins, and customer credit
  • Fertilizer Prices vs. Input Costs: Nitrogen set-up for 2H16 margin pressure
  • Capacity Growth & Exports: Chinese export trends, additional North American capacity
  • Retail Supplier Consolidation: Merger activity and trends in supplier concentration over time
  • Capital Allocation: Consideration of Agrium's redeployment of cycle peak profits
  • Valuation vs. Cycle: Valuations outside of Ag boom for retail, wholesale; where we expect Agrium shares to trade.

 

To access our institutional research email sales@hedgeye.com.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%

A Closer Look At European #GrowthSlowing

Takeaway: European equities continue to fall as the #GrowthSlowing data continues to roll in.

A Closer Look At European #GrowthSlowing - economic indicators cartoon 02.24.2016

 

Below is analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier today: 

 

"One way to keep US Equity Beta Up = Dollar Down (on the week); but how does that continue (from here)? With GBP/USD signaling immediate-term TRADE overbought at $1.34 and US economic growth (Q2 GDP) not tracking to recession (our Q2 predictive tracking algo currently has 1.5-1.8% y/y)?

 

The other side of the FX (and relative economic slowing) TREND looks like Euro Down (vs. Dollar Up) to me; EUR/USD top-end of the risk range = $1.12, and as European #GrowthSlowing continues I’m looking for a re-test of $1.05; French stocks down -0.8% have the CAC40 out of “crash” mode at -17% from last year’s high, but still bearish TREND @Hedgeye."

 

Take a look at the chart below of tumbling European equity markets:

 

Why such dismal performance?

 

Europe's #GrowthSlowing data continues to roll in...

 


Daily Market Data Dump: Friday

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, rates and bond spreads, and key currency crosses. 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: Friday - equity markets 7 15

 

Daily Market Data Dump: Friday - sector performance 7 15

 

Daily Market Data Dump: Friday - volume 7 15

 

Daily Market Data Dump: Friday - rates and spreads 7 15

 

Daily Market Data Dump: Friday - currencies 7 15


[UNLOCKED] Keith's Daily Trading Ranges

We've made some new enhancements to Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. Click here to view a brief video of McCullough explaining how to use it most effectively.

 

Subscribers now receive risk ranges for 20 tickers each day -  the last five of which are determined by what's flashing on Keith's screen and by what names subscribers are asking about. Click here to subscribe.

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.56 1.31 1.53
SPX
S&P 500
2,101 2,177 2,163
RUT
Russell 2000
1,202 1,225 1,202
COMPQ
NASDAQ Composite
4,850 5,090 5,034
NIKK
Nikkei 225 Index
14,919 16,590 16,385
DAX
German DAX Composite
9,269 10,105 10,068
VIX
Volatility Index
12.24 18.32 12.82
USD
U.S. Dollar Index
95.28 96.92 96.10
EURUSD
Euro
1.09 1.12 1.10
USDJPY
Japanese Yen
100.28 106.29 105.44
WTIC
Light Crude Oil Spot Price
43.09 47.04 45.50
NATGAS
Natural Gas Spot Price
2.61 2.95 2.73
GOLD
Gold Spot Price
1,315 1,378 1,335
COPPER
Copper Spot Price
2.08 2.28 2.24
AAPL
Apple Inc.
94.52 98.99 98.79
AMZN
Amazon.com Inc.
720 761 741
NFLX
Netflix Inc.
90.83 99.14 98.02
GOOGL
Alphabet Inc.
691 745 735
JPM
J.P. Morgan Chase & Co.
58.40 64.89 64.12
INFY
Infosys Tech.
17.05 18.46 18.44


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