Ponzi

Stock Market?

What Would Stocks Do in “a World Without Buybacks,” Goldman Asks

In the fourth quarter 2018, share repurchases soared 62.8% from a year earlier to a record $223 billion, beating the prior quarterly record set in the third quarter last year, of $204 billion, according to S&P Dow Jones Indices on March 25. It was the fourth quarterly record in a row, the longest such streak in the 20 years of the data. For the whole year 2018, share buybacks soared 55% year-over-year to a record $806 billion, beating the prior record of $589 billion set in 2007 by a blistering 37%! 

“Repurchases have consistently been the largest source of U.S. equity demand,” the Goldman strategists wrote in their note. “Without company buybacks, demand for shares would fall dramatically.” 

Letting the stock market fend for itself and embark on its own price discovery without the relentless bid of share buybacks would be a true nightmare. No one would be ready for it. This type of world is just too painful to even imagine these days.

Tan Liu: Why Many Of Today's Most-Owned Stocks Are Ponzi Schemes

Too much phantom wealth vs cash flow

Dividends provide and income stream which can be quantiatively valued. Capital gains result from speculation -- an expectation that future dividends will be higher than the market currently expects. 

But what's the value of a company that continuously pays no dividends and does not appear as if it ever will in the foreseeable future? 

So when one person buys low and sells high, another is also buying high and needs to sell for even higher. And a system where current investors’ profits are dependent on cash from new investors is by definition how a Ponzi scheme works. 

But if investors are the only ones contributing money into the system, how on earth can they all make money from it? That’s really the bottom line. A stock without dividends is really just a Ponzi asset and there is no monetary connection to the company. 

DYI:  So many corporations today their lofty stock prices are due to stock buybacks.  Amazing the last quarter was their highest ever recorded all purchased at astronomically high valuations and to make matters worse a majority of these dollars all came from borrowings.  Buy back shares at obscene valuations and weaken the corporation’s balance sheet.  Corporate stewards I think not.  Nothing more than a short term mentality bonus time for the CEO based on stock price performance.

It is no accident that my blog’s name is The Dividend Yield Investor.  Actual dividends paid through internal cash flow are the true measure of a corporation’s worth.  When this debt bubble explodes – and it will I just don’t know when – with sky high valuations stock prices will drop precipitously.  Just cutting the market in half would be a run of the mill, nothing to write home about bear market only bringing valuations to fair value!   A more realistic decline is 60% to 75%!  This may take more than one full cycle to achieve.  We could possibly embark upon the Japanese experience; a two decades [possibly longer for Japan if the American decline drops Japanese stocks to a new low] long bear market.  Who knows for sure but what we do know stocks at these levels is a lousy investment.

  DYI