Is The Market Riding One Last "Sugar High?"
Corporate Executives Are Selling Stocks In Record Numbers
Corporate insider selling has hit record numbers in May and June. They have dumped over a combined total of $17.6 billion dollars worth in that time period.
Of course, the dump only comes after a pump, right? The fuel behind the pump has been stock buybacks in which 2018 has been a record year due to the corporate tax breaks. A combined total of $678.7 billion worth of buybacks was announced in the first two quarters of 2018. Both quarters have beaten any other quarter in history.
$6.3 Trillion in Corporate Debt
Corporations are not just borrowing when times are tough, but they are borrowing when times are good. This is a major problem.
US companies now owe a combined total of $6.3 TRILLION. This amount of debt is now higher than ever before, and it doesn't even include bank debt!
Now with interest rates rising what are companies doing? Not paying off this debt, nope. They are buying back their own shares, often at historical highs!
Buybacks are good if the company stock is actually undervalued (where insiders would also be purchasing stock themselves), but at this late market cycle is that really where stocks are priced? Would it not be better to use this one-time cash infusion to pay off debt and brace for the recession that is bound to happen?
Chinese Money is Trickling into US Investments and Pouring into Europe Instead
By a ratio of 9-to-1, more Chinese money is flowing into the European stock market instead of the United States. In money terms, $20 billion went to Europe and only $2.5 billion went to North America in the first two-quarters of 2018. This is a huge drop compared to even 2017, which was in itself a huge drop from 2016.
Not only is very little new Chinese money entering the American market, large sums are leaving as Chinese companies are divesting. $9.6 billion has already left, and at least another $5 billion is on its way out soon.
Sector Buyback Leaders
Tech and healthcare, followed by financials are the leading stock buyback sectors.
When I take a snapshot of insider sales, I see these sectors again.
VERY few purchases with plenty of sales - and this is just one day of the market!
Tellingly, the healthcare insiders are unloading their holdings the most. Just $46,356 in purchases and $66,320,133 in sales on Friday. I would say that insiders see this as a prime time to get out of that sector.
Conclusion
Buybacks are at peak highs and so are insider sales. They are using the one-time tax break to enrich themselves. On one hand, they are buying with corporate cash and on the other, they are selling all they can for individual gain. To hell with the future of the company and shareholders, times are great!
To put it bluntly, its a racket the mob would be proud of.
It is also worrying as stock buybacks do not increase real earnings even if it increases their EPS. Fewer shares outstanding and the same income will mean a higher EPS, which is a statistic that is heavily tracked and so makes the company appear to be doing better.
With the Federal Reserve increasing the interest rates, debt at all-time highs, China vastly decreasing investments in North America, and the only thing seemingly holding up this market is a record amount of buybacks, I don't think the markets are being built on a strong foundation.
Just like its always darkest before the dawn, it is always brightest before the storm. And just like always, the next recession will come as a complete surprise to many, even if all they had to do was look up at the sky.
That being said, I am not sure that even when this "sugar-high" of stock market buybacks ends it will be enough to bring on the crash. But it might be strong enough to ensure a repeat of the drop we had in February of this year.
Only time can tell.
I've always found it interesting that a company would approve buying their own stock at a high price, when they wouldn't but someone else's stock at a similarly high price. Wait until the price is low and then buy back so you are making a profit on your own stock. Then your other shares will be worth even more.
I don't understand this desire to get more debt. Yes, maybe you're expanding, but why continue to have so much debt on the balance sheet when you could be debt-free and then grow with no debt holding you back. The growth might be slower for a little while, but it will also be easier to maintain when times are tough.
Just my personal thoughts. Not advice on how to run a business or how to buy stocks.
Yes, and a chunk of companies went into debt for the sole reason to buyback more shares.
Las Vegas Sands recently took out more debt, $1.35 Billion, to buyback shares at a high. At this late cycle, I called it foolish. Casino stocks are the hardest hit in a recession.
Brilliant! And they wonder why they're broke. I've never really liked the idea of buybacks unless the stock was at a low. A buyback should signal that the company is forecasting actual growth, not just growth in earnings per share.
Looking at the above and the chart you posted last week, if you called the cycle point right (and I thought the same) healthcare was next on the buy list after PMs, and you would not want to be buying Info Tech. Hmmm, confusing!
For healthcare to be the next buy it would make sense for it to be a hated market and experience a drop to push them into a buy zone.
Doesn't change my investment strategy of index funds.
Hopefully the crypto bags I have rockets up before the crash, So I can pour money into index funds and double my money when it rebounds.
This next recession will show if big money rushes to crypto in times of mass market fear.
If crypto moons while the market crashes, selling your crypto and buying good quality companies will certainly pay off in the years to come.
Recession is incoming... if I had to put money on it I would probably short a lot of stocks mid-2019 to late 2019, I don't see this going past 2020, it's impossible! This high as gone on for too long...
Companies shouldn't be going into debt now, this will only make the recession even worse... my country is still trying to deal with the last drop in the market back in 2008, we had a tourist high last year which got us through it, it diminished this year... I'm really worried, I see Portugal going to shit very soon if we go into recession
Well, let's hope the crypto market actually goes up when the stock goes down... it might happen, btc is much better than gold as a store of value
Well, I would imagine that property would again become extremely cheap in Portugal. I think that buying at the end of the next recession would be great.
If my cryptos happen to pick up with the recession I might very well cash out some into fiat and buy 1 or 2 houses to rent! It's always good to diversify!
That would be a good idea. People will always need to live somewhere.
BTW I thought you should know, the author of rich dad poor dad joined steemit some days ago :)
https://steemit.com/@robertkiyosaki
We getting some big names up in here!
Is it really him?
From what i've seen and read yeah it is really him! And his text is pure gold imo, talking about a generation gap and that is why warren buffet can't understand these new things like the blockchain
This was a very informative post. The Smart Money knows best and us retail investors must follow them. We must leave the party early while there is still a little bit of punch in the bowl left.
They certainly control the market with their buying and selling.
Clearly a biased one-sided point of view. What qualifies you to give investment insights?
I read a lot about it, from all sides.
Oh, and here is another person who released a video about this just today.
(my article was yesterday)
@getonthetrain I am just Grateful that SILVER Exists............You know how I feel about Wall Street.....................
I hear ya, silver is so hated right now. Heck, it even dropped more after I thought it was a great buy at the first part of this year.