iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
20,339 Blog Posts

Financial Engineering FTW

I read an article a few months ago about a Goldman BallSachs analyst warning investors that share buybacks would slow to “only” $700 billion for 2019 and how it might hurt stocks. I suppose this fellow thinks buybacks in the order of $1 trillion per annum is normal. Needless to say, he was wrong, naturally. Markets have soared, funneled through the prism of financial engineering — which is boosting profits for the sake of profit. Nothing else or more.

Take for example the case of Target, one of the few survivors in the wars against Amazon. The stock is up 90% in 2019. What is driving the stock?

Look at the shares outstanding, sinking every single quarter due to buybacks.

 

Revenues have inched up, good, but not worth +90% for 2019.

Dividends, thru the roof, courtesy of higher profits — thanks to SHARE BUYBACKS.

Earnings edged up.

So how did we get here? Cheap AF money. Apple has over $100 billion in debt, for no reason at all. The company can bootstrap any engineering they desire, at $13-15b per quarter in profit, but choose to borrow money because it’s cheap and because they want to buyback their shares, which reduces share count and increases EPS. It’s complete horseshit, but it won’t end until either the economy crashes or rates go up.

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11 comments

  1. alty

    Great time for hedge and cash

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    • Dr. Fly

      How do you know anything at all?

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    • numbersgame

      Alty, I suppose your theory is that since the stock market is making ATHs, then that validates owning stocks at these prices? Boy do I have a deal for you:

      https://news.artnet.com/market/maurizio-cattelan-banana-art-basel-miami-beach-1722516

      Now this has sold for $120k twice now, but I will sell you a banana on a wall for only $80k. I will also include mounting and lighting instructions for free.

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      • numbersgame

        “The artist and the gallerist arrived at the $120,000 price after several discussions, trying to strike a balance between an insignificant number that would trivialize the work, and an outlandish one that would be completely ridiculous”

        See? $120K is NOT rediculous at all, but a fair value. I don’t take checks, Alty.

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  2. ferd

    Silver slammed back down this morning to major support area. Bought some here.

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  3. jbandy

    I believe that the smarter you are (or think you are), the worse your investment portfolio will do. This is all thanks to your cynicism which is effectively a mental handicap when it comes to investing. You need to ignore all your foolish instincts and put your trust and faith in policy-makers to keep the party going and the plebeians gainfully employed.

    The market is quite simple. So long as (1) the US government is running up deficits (fuel for the economy), plus (2) the Fed takes a loose/accomodative stance (i.e. printing money out of thin air and keeping rates low), = buy the shit out of the S&P 500, sit back hold and do nothing.

    You don’t need idiotic financial advisors or stock newsletter submissions or any other garbage. In fact, it’s best if you read nothing except to keep tabs on US debt and Fed policy.

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    • ferd

      ..and, although it’s forbidden here, keep tabs on politics.

      If the unwashed Dem voters somehow manage to nominate one of the progressives, the Fed and congress (both sides of the aisle) are likely to do everything they can to keep the party going in order to keep Trump in the White House. But if they nominate a BidenMayorPeteBloomberg, they may seek to precipitate a mid-2020 crisis and blame Lord Trump ..so that their tool of choice can ride in on a white horse.

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    • maxx2000

      J, Occam’s razor really likes your thesis.

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    • wolfdaddy

      Right. Just like Carl and his blazer

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  4. arianapham

    This will be all you want fireboy and watergirl it is very interesting and fascinating.

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