finance – Page 18868

Stock Buybacks at Market All-Time Highs: Poor Use of Corporation Capital

Era of Stock Buybacks

This has definitely been the era of stock buybacks with such low borrowing costs as companies are borrowing at very low rates not to expand the business, create innovative products, increase research and development but to buy back their own stock which isn`t cheap considering the multiple expansion in markets the last five years.

But earnings from a revenue side have been subpar to say the least and companies are buying back stock each quarter just to make their quarterly numbers look better than they actually are based upon the year over year business growth.

Further Reading: Invest in the Gold Market 2014

The funny thing is that this has been going on for four years, these are public companies right? At what point do the floats become so small that for all intents and purposes these are private companies? I am being a little facetious here, but this has to be the longest continuous era of stock buybacks on record all fueled by the Fed`s never before witnessed five straight years with the Fed Funds Rate at near zero percent.

Is this the Best Use of Company Capital?

It is a real shame that these companies don`t have some better use for this cheap government loans in essence than stock buybacks. How is the economy ever going to grow if these companies don`t try to expand their businesses with this cheap capital, hire more workers, and thus have future customers for their products who are now employed consumers.

But with stock floats getting smaller and smaller and company stocks at record highs isn`t this the opposite of buying low and selling high? The companies are buying their stock when it is extremely over-valued. Isn`t the smart use of stock buybacks to buy back the company stock when the company thinks that the shares are undervalued by the market? You know, buying low and selling high, doesn`t this just make for good business practices?

Further Reading: Why 401K Investors Should Move to Cash

50% Losses on Buybacks?

By my thinking most of these stock buybacks are going to be underwater once QE ends this summer of 2014, and the stock buybacks are going to be net losses for these companies down the line. How do responsible boards allow this type of behavior, buying back stock at exceptionally high levels?

Furthermore, once interest rates start rising and companies have to start raising capital where do you think it is going to come from? These same shares are going to return to market at much lower prices, further pushing stock prices down vie share dilution. This is the exact opposite of how a solid business would want to manage operations, cash on hand, borrowing, and managing stock buybacks.

The reasoning is that this is all setting up future earnings to be real bad when all these shares come back to market for equity raises, which you know is inevitable, and these stocks are going to have just terrible quarters, further sending their stocks down in the process.

Further Reading: Is Janet Yellen Smarter Than Me?

Market Crash Inevitable

All the factors are coming together for quite a correction in stocks at some point down the line, and this is just another example of buying time now, but paying a heavy price in the future. All of which further exemplifies why we are going to have another huge market crash, the boom and bust cycle of credit markets, and how every investor better be damn good at market timing. There is no other choice with these types of poor cash management issues at companies.

Misplaced Incentives Short-term in Nature

The cynical side of me who has worked at many fortune 500 companies sees this as the real motivation or at least a driving force. All the executive team, all the players at companies receive stock options in compensation packages, stock buybacks not only help shareholders right now with increased returns, but all these ‘big dogs’ at these companies make a fortune on these stock options with stock prices higher each consecutive year, and each successive month for 2013.

The delta between the issue price, and when they exercise these options is incredible right now, and the incentive to push these compensation packages through the moon via stock buybacks, even with the market at all-time highs, is just too good for these executive teams to pass up right now.

Retirement Golden Options Plan

In addition who cares if this is a poor use of company resources, if these shares are going to be largely underwater in three years, with the money these executives ( and we are not just referring to CEOs – employees who receive options can be quite broad from a numbers standpoint at large firms – all at the upper management level of course) make on these stock options they can retire comfortably, and they probably aren`t even going to be around at these firms when the proverbial mess hits the fan at these companies.

Boards Same As They Always Are – Borderline Incompetent

Consequently again I ask where is the board in all of this excessive use of stock buybacks quarter after quarter? Aren`t they supposed to be the checks and balances for this type of short-sighted behavior? I thought we learned something from the “Enron Era” of good old boys Boards!

When I heard Kyle Bass discussing one of the reasons he was investing in Herbalife because he thought after the audit is completed that Herbalife will be able to borrow at 300 basis points to buyback future stock at all-time highs – I just shake my head as this isn`t going to end well folks!

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/uK1-s5G0Xmw/story01.htm EconMatters

Global House Price Index Surges To Record High

With home prices in the UK driving people to live in boxes and Bob Shiller worried about the US, Bloomberg's Niraj Shah notes that the Knight Frank global house price index has risen to a record. The index, now 4% above the previous high in Q3 2008 is led by China and Emerging Nations (with Europe weakest) as investor speculation amid central bank liquidity fuels yet another bubble (that no one could see coming again).

Via Bloomberg's Niraj Shah (@economistniraj),

Record High for Global Index

Global house prices are gaining traction. Values rose an annual 4.6 percent in the third quarter compared with 1.7 percent in the same period in 2012, and the index is 12.7 percent above its financial-crisis low in 2009. Prices in more than 69 percent of the countries tracked by the index grew in the year through September, compared with 55 percent two years ago. The Knight Frank index incorporates house prices in 53 countries.

China, Emerging Countries Lead Price Growth

Prices in China rose the most, gaining 21.6 percent. Emerging economies made up the rest of the top five, with Taiwan, Indonesia, Turkey and Brazil recording price growth of more than 10 percent. The U.S., the biggest housing market, grew an annual 11.2 percent. The only countries outside Europe to experience declines were Japan, South Korea and New Zealand. Dubai recorded the largest growth rate for a city with 28.5 percent.

Europe Remains Weakest Region

While average values rose in every region, European property prices were the weakest performers in the year through October. Prices increased 0.8 percent in Europe, compared with 17.9 percent in the Middle East. Fourteen of the 17 countries experiencing annual price declines were in Europe. Average prices in Europe resumed growth in the second quarter.

European Prices Diverge

There is a widening divergence between countries in Europe. Annual house prices in Germany rose the most in the third quarter — 11.2 percent — while prices plunged 19.7 percent in Croatia over the same period. Ireland achieved the biggest turnaround, with values rising 4 percent in the three months through September. Property values were falling at a rate of 5.4 percent each quarter less than two years ago.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/6K7EhTNcS6I/story01.htm Tyler Durden

Citi Unveils The 12 Charts Of Christmas

Despite misses on stocks and gold, Citi FX Technicals' excellent "12 Charts of Christmas" performed well in 2013 directionally across FX, bonds, and commodities. This year, Tom Fitzpatrick and his team unveil 2014's most important charts – establishing a starting point for their outlook in the year ahead. From a slowing housing market to expectations of a strong USD; and from a "roll-over" in Consumer Confidence to strength in gold, they see the "repair process" continuing albeit at a slow pace but worry that the stock markets are looking more and more like 2000.

Via CitiFX Technicals,

What do we believe for 2014?

The USD bullish trend remains intact and the DXY Index should set new trend highs (90+).
EURUSD: We expect a sharp turn lower that could see EURUSD in the 1.18-1.22 range in 2014. A very easy ECB policy will likely be a contributing factor here.
USDJPY: Remains in a broad uptrend and we would expect a move towards at least 110-111 this year. This should continue to be supportive of the Nikkei.
Consumer Confidence: Looks set to “roll” lower in a fashion similar to 2000 and 2007. This may have implications for the U.S. Equity market which looks stretched at this point in a fashion similar to 2000.
Housing looks better than it was at the lows but nowhere near the traditional recovery/escape velocity of prior cycles. In 2014 we may even see a pause in its improvement.
US yields: Similar to last year we suspect that an initial move lower may well emerge towards at least 2.40% (10 year) and 3.50% (30 year) and possibly lower. This is within a longer trend dynamic where they will likely move higher again thereafter. We would expect significantly higher yields in the next few years to materialise.
Gold finally looks to be forming a base for a move higher. However we need both more convincing price action and likely a struggling equity market to solidify this potential.
In Local Markets the USDBRL chart is one of the more convincing pictures and suggests a much weaker BRL is in prospect in 2014.

Overall: We see a backdrop where the “repair process” of recent years continues at a slow pace but where the US continues to look like the “best house on a bad street” when it comes to the major developed nations. This should also benefit the USD and keep the relative picture for yields (monetary policy) in favour of the US.

The corrective platform could be the “launch pad” for a move to new highs in the trend and a stronger USD all the way to 2016 as per previous post housing collapse cycles.

EURUSD turning lower like it did in 1998? A move towards 1.20 this year and much further over the next 2+ years looks likely.

A move similar to 1978-1982 could see USDJPY as high as 118 eventually while a repeat of 1995-1998 would suggest as far as 139. An average of the two could see USDJPY close to 130 by 2015. For 2014 we would expect a move to at least 110-111

Another 4 year and 4 month trend coming to an end?

The last 2 peaks in Consumer Confidence led the S&P by 3-4 months. That pretty much takes us to now… big divergence between the Equity market and the real economy.

Peak in the 1,820-1,830 area? Prior peaks have seen pretty quick falls to the 200 week moving average.

Is the US 30 year yield double topping as it has done so many times before?

The potential double bottom will target 3.70 with a break above 2.62. Beyond there the all-time USDBRL high at 4.00 could well be eventually tested.

And summarising their strong conviction 2014 views:

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/TTUJhIsccoI/story01.htm Tyler Durden

CHRiSTMaS WiTH ED SNoWDeN…

I’m dreaming of a white noise Christmas
Just like the ones I used to know
Where the tower tops glisten
And spooks can’t listen
To hear crypto-data in the snow

I’m dreaming of a white noise Christmas
With every Christmas card emailed
May your days be merry and bright
And may all
Your Christmases be private

MERRY CHRISTMAS ED, wherever you are…

From WilliamBanzai7 and the rest of the fringe low brows at Zero Hedge

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/MkCJdccN4Xc/story01.htm williambanzai7

The Complete, Unabridged Confusion Over The Fed's [December|January|March] Taper

Bloomberg has been kind enough to summarize the epic confusion gripping the sellside on the topic of the Taper, which once again everyone thought would not take place until 2014, and now there is palpable panic may hit as soon as next week. Kudos to the Fed on its “transparent” communication strategy.

Below is Bloomberg’s recap of the main viewpoints on when FOMC will start to Taper, with estimates ranging from FOMC’s Dec. 17-18 meeting in Washington to Jan. or March, based on published research.

Barclays

Fed will wait until March to taper

BMO

Do not expect “Yuletide Taper”

BNP

QE to end by early 2015

BoT-Mitsubishi

Fed should take immediate action on QE taper
Fed officials dragging feet on QE exit

Capital Economics

Jobs data points to tapering this month
QE tapering this month “very close call”

Citi

Expectations for Fed tapering in Dec. increase in poll
Fed to discuss tapering in “concrete” way

CRT

Fed “apprehensive” about impact of tapering

USD to benefit as jobs data seals Dec. taper

GMP

Payrolls “not good enough” for Dec. taper

Jobs data strong, still expect March taper

HFE

Payroll gain points to taper as soon as next month

ING

Jobs data suggests tapering is closer

JPMorgan

Nov. jobs report “smells a little like tapering”
Fed cut to IOER rate would complicate communications

Miller Tabak

Drop in jobless rate signals Dec. QE taper

Mizuho

Economy not yet ripe for tapering

Morgan Stanley

Fed to taper in March, cut UR threshold to 6%

MUFJ

Aug.-Nov. labor market data supports Dec. taper

Natixis

U.S. economy’s fragility urges Fed caution

Newedge

Fed could go beyond tapering next week

Nomura

37% See Fed tapering next week
Expect no Dec. tapering

Pimco’s Gross

Odds of Fed tapering are 50% in Dec., clear that Fed wants out of QE

Renaissance

Fed will wait to taper in 1Q instead of Dec.

Sunrise

Taper-tightening link looks stronger on payrolls

Fed’s tapering-isn’t-tightening message begins to resonate
Odds of Jan. tapering now above 50%

* * *

Good luck.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/YH5VRDzLKyk/story01.htm Tyler Durden

The Complete, Unabridged Confusion Over The Fed’s [December|January|March] Taper

Barclays

Fed will wait until March to taper

BMO

Do not expect “Yuletide Taper”

BNP

QE to end by early 2015

BoT-Mitsubishi

Fed should take immediate action on QE taper
Fed officials dragging feet on QE exit

Capital Economics

Jobs data points to tapering this month
QE tapering this month “very close call”

Citi

Expectations for Fed tapering in Dec. increase in poll
Fed to discuss tapering in “concrete” way

CRT

Fed “apprehensive” about impact of tapering

USD to benefit as jobs data seals Dec. taper

GMP

Payrolls “not good enough” for Dec. taper

Jobs data strong, still expect March taper

HFE

Payroll gain points to taper as soon as next month

ING

Jobs data suggests tapering is closer

JPMorgan

Nov. jobs report “smells a little like tapering”
Fed cut to IOER rate would complicate communications

Miller Tabak

Drop in jobless rate signals Dec. QE taper

Mizuho

Economy not yet ripe for tapering

Morgan Stanley

Fed to taper in March, cut UR threshold to 6%

MUFJ

Aug.-Nov. labor market data supports Dec. taper

Natixis

U.S. economy’s fragility urges Fed caution

Newedge

Fed could go beyond tapering next week

Nomura

37% See Fed tapering next week
Expect no Dec. tapering

Pimco’s Gross

Odds of Fed tapering are 50% in Dec., clear that Fed wants out of QE

Renaissance

Fed will wait to taper in 1Q instead of Dec.

Sunrise

Taper-tightening link looks stronger on payrolls

Fed’s tapering-isn’t-tightening message begins to resonate
Odds of Jan. tapering now above 50%

* * *

Good luck.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/YH5VRDzLKyk/story01.htm Tyler Durden

Guest Post: Ukraine’s Two New Energy Deals

Submitted by Scott Belinksi of OilPrice.com,

If one was to believe the picture that most Western media outlets are painting, Ukraine has been lost to Russia. Though the country fought valiantly to sign an Association Agreement with the European Union in Vilnius, Lithuania last month, President Viktor Yanukovych suspended negotiations with the EU at the last possible moment, betraying Ukrainians everywhere. Two recent energy deals that Ukraine has reportedly made, one with Russia and the other with Slovakia, however, show that the reality of the situation is slightly more complex.

Claiming that Yanukovych had always wanted negotiations with the EU to fail would arguably be giving him and his advisors too little credit as political strategists. In terms of public opinion, signing the Association Agreement would have all but secured Yanukovych’s re-election in 2015, whereas his step down from the deal has visibly shaken his legitimacy as President to its core. Rather, too little attention is given to the very real economic pressure Russia has placed on Ukraine and the EU’s reluctance or inability to offset Putin’s ‘trade war’. Furthermore, while Yanukovych did not sign the Association Agreement in Vilnius, he did not commit his country to Putin’s rival ‘Eurasian Union’ either.

Prior to the Vilnius Summit in November, the Ukrainian government found itself between a rock and a hard place. On one hand, Russia was imposing exorbitant gas prices and devastating economic sanctions on Ukraine’s already fragile economy. By October 10th, 2013, trade between the two countries had fallen by 25% and prices for Russian gas, on which Ukraine remains dependent, stood at $420/1000 m3, $50 more than the European average. On the other hand, EU leaders refused to hold tripartite negotiations with Russia and Ukraine, instead using all their leverage to insist that jailed former Prime Minister Yulia Tymoshenko, convicted of abuse of office and embezzlement in 2011, be freed.

All of this comes on top of Ukraine’s dire situation. The country faces $10 billion in principal and interest payments next year and has the third-highest default probability in the world. In an address following his decision to suspend negotiations with the EU, Yanukovych stated, "I would have been wrong if I hadn't done everything necessary for people not to lose their jobs, receive salaries, pensions and scholarships.” While many Ukrainians and outside observers may not take the President’s words at face value, it is no lie that, had Ukraine signed the agreement, economic disaster would have been imminent.

Two energy deals

As there was little the EU could/would offer to offset the immediate Russian reprisals on Ukraine’s economy, the government renounced signing the Association Agreement. However, two gas deals currently in the works show that, far from being sucked forever into Russia’s orbit, Ukraine will continue to flirt with both East and West and, most of all, move towards energy independence.

While the exact details of the deal Yanukovych has hammered out with Russian President Vladimir Putin in Sochi last Saturday remain unknown, Edward Lucas, the international editor of The Economist claims that gas prices for Ukraine will be brought down to $200/1000m3 with a $5 billion cherry payment on top. Lucas also claims that Yanukovych has promised that Ukraine will join Russia’s customs union as part of the deal, though this has been virulently denied by the Russian administration. At the same time, payments for Russian gas transferred from Gazprom to Naftogaz between October and December 2013 have been deferred until the Spring of 2014, all of which gives Ukraine some much-needed breathing room.

On the Western front, however, Ukraine agreed on the conditions for a gas deal with Slovakia for importing European Union gas through Slovak pipelines. These new flows, including gas from Poland and Hungary, could exceed 10 billion cubic meters annually, enough to meet Ukraine’s entire import needs. The move, which has long been heralded as a strategy to curb Ukraine’s energy dependence on Russia, comes less than two weeks after negotiations with the EU broke down, questioning the dominant narrative that the Ukrainian government is content to sign itself away to Moscow.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/QZzAkPnxGzw/story01.htm Tyler Durden

30 Year Auction Prices At Highest Yield Since July 2011

The 10 Year may so far be contained below its multi-year high of 3.00% hit in September just before Bernanke’s “no taper” announcement, but the ultra long end, or the 30 Year, keeps dropping. Sure enough, moments ago the latest 30 Year reopening of 29 Year-11 Month CUSIP RD2 priced at a high yield of 3.900%. This may have been half a bp through the 3.905% When Issued, it still was the highest pricing yield on the 30 Year since July 2011, right before the US downgrade and the 20% S&P plunge resulting from the near debt ceiling breach. The Bid To Cover of 2.35 was modestly higher than last month’s 2.16 but had a ways to go to catch up to the TTM average of 2.48. In terms of allotment, Indirects got the bulk of the auction, with 46% or the highest take down since April 2011. Directs were allotted 12.5%, or the lowest since June, which meant Dealers would have to “sell” back to the Fed 41.4% of the auction. So while not as immediately stirring as yesterday’s very weak 10 Year, the sentiment toward the long end continues to deteriorate.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-F1mIpPNZ1E/story01.htm Tyler Durden

The IMF wants you to pay 71% income tax

December 12, 2013
Sovereign Valley Farm, Chile

The IMF just dropped another bombshell.

After it recently suggested a “one-off capital levy” – a one-time tax on private wealth as an exceptional measure to restore debt sustainability across insolvent countries – it has now called for “revenue-maximizing top income tax rates”.

The IMF’s team of monkeys has been working around the clock on this one, figuring that developed nations can increase their overall tax revenue by increasing tax rates.

They’ve singled out the US, suggesting that the US government could maximize its tax revenue by increasing tax brackets to as high as 71%.

Coming from one of the grand wizards of the global financial system, this might be the clearest sign yet that the whole house of cards is dangerously close to being swept away.

Think about it– solvent governments with healthy economies don’t go looking to steal 71% of people’s wealth. They’re raising this point because these governments are desperate. And flat broke.

The ratio of public debt to GDP across advanced economies will reach a historic peak of 110% next year, compared to 75% in 2007.

That’s a staggering increase. Most of the ‘wealithest’ nations in the West now have to borrow money just to pay interest on the money they’ve already borrowed.

This is why we can only expect more financial repression from desperate governments and established institutions.

This means more onerous taxation. More regulation. More controls over credit and capital flows.

And that’s only the financial aspect; the deterioration of our freedom and liberty will continue at an accelerated pace.

Can a person still be considered “free” when 71% of what s/he earns is taken away at the point of a gun by a bankrupt, bullying government? Or are you merely a serf then, existing only to feed the system?

This is why we often stress having a global outlook and considering all options that are on the table.

Because the other side of the coin is that while some countries are tightening the screws and making life more difficult, others are taking a different approach.

Whether out of necessity or because they recognize the trend, many nations around the world are launching new programs to attract international talent and capital.

I’ve mentioned a few of these already– economic citizenship programs in places like Cyprus, Malta, and Antigua (I met a lot of these programs’ principals at a recent global citizenship conference that I spoke at in Miami).

[Note to Premium Members: you’ll receive the details and contact information for the Antigua program today.]

Then there are places like Chile and Colombia which have great programs for entrepreneurs and investors. Other places like Georgia and Panama have opened their doors to nearly all foreigners for residency.

Bottom line– there are options. Some countries are really great places to hold money. Others are great to do business. Others are great places to reside.

The era we’re living in– that of global communications and modern transport– means that you can live in one place, your money can live somewhere else, and you can generate your income in a third location.

Your savings and livelihood need not be enslaved by corrupt politicians bent on stealing your wealth… all to keep their destructive party going just a little bit longer.

The world can truly be your playground. You just need to know the rules of the game.

from SOVErEIGN MAN http://www.sovereignman.com/trends/the-imf-wants-you-to-pay-71-income-tax-13285/
via IFTTT

Is This The Chart That Has Small Cap BTFATH-ers Nervous?

For the last year, every test below the 50DMA for the Russell 2000 has been met with a cavalcade of BTFD-ers (which then transformed into BTFATH-ers). However, we wonder, does the following longer-term chart suggest this time might just be different?

Easy…