Mar 12, 2015
There is a mind-boggling process at work today just as was the case in the run-up to the 2008 stock market crash. It’s called the share buy-back
Do you recall when, in the months before the Lehman Brothers collapse and bankruptcy in 2008, I stated that the Company is too smart to be buying $1.7 billion of their stock at a market cycle top? I went on to say they were buying all the securities from family, friends and best clients to provide all the funds those people would need to buy shares at much lower prices after the next Bear.
In other words, I believed Lehman was ripping off the market. And they did.
Same thing is happening today. Yesterday, Morgan Stanley (MS) announced a major share buy-back plus a 50% increase in dividends. Their treasury is now in the process of being raped.
Do you recall how shortly before the 2008 market crash, Wall Street was advocating massive dividend increases? Again, who was benefitting more than family, friends and best clients?
Well, Wall Street is at it again.
Given that this process is happening at cycle tops, when costs are enormous, rather than at cycle bottoms, when market support is needed, I must believe it is a plan. A plan to screw the rest of us.
The Economist wrote about this, including the Lehman Brothers fiasco.
“In any case, managers in aggregate are about as good at predicting share prices as dart-throwing simians. Admittedly, studies show a mild “signalling” benefit to share prices when firms buy—perhaps because investors believe executives know more than they do… Overall, though, executives are hopeless. This is amply illustrated by the fact that buy-backs last peaked in 2007, just before the crash, whereas few firms bought in 2009 when shares were dirt-cheap. In the six months to May 2008, as Lehman Brothers faced a cash crunch that would end in its bankruptcy, it blew $1 billion on buying its shares. In all, America’s financial sector repurchased $207 billion of shares between 2006 and 2008. By 2009 taxpayers had had to inject $250 billion into the banks to save them.”
The feeding frenzy has escalated since The Economist published that piece (“The Repurchase Revolution”) in September 2014.
Once burned, twice shy. Other bloggers are now warning you:
Moral of the story: Sell when Wall Street wants to buy their shares, and buy when they want to sell.
The news is so interesting these days.
It’s conjecture on my part of course, but I think HillaryGate is about to get somewhat ugly for the Clintons and for the Democrats. Her presumed run at the White House is rapidly becoming problematic.
After watching Stuart Varney’s discussion with Fox senior legal advisor Judge Andrew Napolitano this morning (and the past few days), I think Napolitano nailed it: Clinton’s server will be subpoenaed by Congress and arrogance will be her undoing.
http://www.foxbusiness.com/watch/anchors-reporters/judge-andrew-napolitano-bio/
https://www.youtube.com/watch?v=NxJSjUp4r-s
https://www.youtube.com/watch?v=bncZwCMwAdI
Seems to be a good time for Sen. Elizabeth Warren to be raising funds to take a run at the White House. Would you agree?
Also in the news, but worthy of consideration nonetheless is the discussion on Financial Entertainment Television of what the Dow 30 would look like today had Apple shares been added to the DJIA back in February 2008 instead of Bank of America shares?
Reuters discussed what might have been the result had Apple replaced IBM in the Dow 30 at the time that Apple shares were split in early June 2014?
http://blogs.reuters.com/data-dive/2015/03/03/interactive-if-apple-were-listed-in-the-dow/
What if Apple had never split its stock?
Apple has now split its stock four times. There were 2-for-1 splits in June 1987, June 2000, and February 2005. With the June 2014 7-for-1 split, you would now be holding 56 shares had Apple never split its stock. Adjusted for dividends as well as splits, the $1.00 share in March 1987 has grown to $125 today.
http://finance.yahoo.com/q/hp?s=AAPL&a=02&b=11&c=1987&d=02&e=11&f=2015&g=m&z=66&y=330
But I think we all know that Apple has had its ups and downs. It was the financial performance from the iPhone and iPad from June-July 2004 that caused the price to soar, and it really took off after the 2008 Bear was finished.
Here is the 10-year chart of AAPL compared to the S&P 500:
Who knew that a singular personal communication device — I consider iPhone and iPad (of which I have three) – to be the same basic tool — would change the world, and the equity market, so much?
Smart PCD’s have given a whole new meaning to life for many of us – even to smart people.
http://www.hawking.org.uk/the-computer.html
Have a good day. We are closing up the boat here in Freeport Bahamas and heading out to Havana Cuba early Saturday morning. From there we fly to Toronto on April 8. And, yesterday our son and his family went off to enjoy St. Paddy’s Day in Ireland. We will be connected by FaceTime.
Hopefully by April, Geoff and I will have the new web site “live” and working well. In the meantime, I will try to keep on blogging, but mostly about what I see happening in Cuba, our fourth trip in five years to Havana.
If you have specific questions about Cuba, please send them to me at [email protected].
Until tomorrow…
/Bill
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