Buybacks As Spreads Narrow. The Greatest Fools Of All

Of course, no where does it say how long this can continue but it's important to be aware. No, it can't go on forever.

We are now entering earnings season once again. Pre-announcements have been the second-worst seen over the past decade.

This has analysts lowering estimates. In fact, they’ve been lowered so far quarterly earnings now look to fall all the way back to 2009 levels.

For the trailing twelve months earnings are now back to 2011 levels…

…even while stocks remain 75% above their own levels from back then. Taken together you get a price-to-earnings ratio of 24, higher than any other time over the past several years.

It should go without saying that extreme valuations and falling earnings are not a bullish recipe for stocks.

So the fundamentals are not supportive of higher prices. What then has been driving them higher in recent weeks?

And the greater fools are none other than the companies themselves…

…for now. If earnings don’t turn around soon (and corporate spreads narrow), it’s going to be hard to maintain the current pace of buyback activity.

Just by glancing at the chart above it’s easy to see that companies have been the greatest fools of recent market cycles, expanding their buyback activity at the highest valuations and reducing them during the most attractive ones, hardly a legitimate theory of investment value. This cycle appears to be no different.

Courtesy of Felder

E-mail me when people leave their comments –

You need to be a member of StockBuz to add comments!

Join StockBuz

We welcome you to post a blog entry, oped or share your daily reading with us as long as it is relevant to the topic of investing and not an attempt to sell a product, proprietary strategy, platform or other service. Please provide links to any research data and if re-posting other articles, give credit where credit is due providing a back link to the original site.

300 words minimum per post. You may also sort by category or search by topic. Don't forget to comment and please "share" via Facebook, Twitter and Google+. If you have any questions, please contact us.



This is a member-supported site. Please donate when you can to help pay the rent. Thank you!

Stay Informed. Sign up for the FREE StockBuz eNewsletter


Investing involves substantial risk. All content is subject to StockBuz disclaimer.

Create Income With Option Spreads

All content on is subject to disclaimer and Terms of Service