The Big Hoax Of The Wall Street Hype Machine

Saturday, May 31, 2014
By Paul Martin

Wolf Richter
Testosteronepit.com
Saturday, May 31, 2014

The S&P 500 index keeps bumbling from one all-time high to the next as corporations are issuing record amounts of debt to spend record amounts on buying back their own shares: $160 billion in the first quarter alone, according to CapitalIQ. Borrowing money to buy back shares and hyping it ceaselessly as “returning value to the shareholders” is the most effective way to manipulate up the stock, even if revenues are declining quarter after quarter.

In this climate of ZIRP, any major corporation can do it. The heavy buying during these low-volume times pushes up shares, the hype surrounding the buybacks pushes up shares, expectation of more buyback announcements pushes up shares, the mere idea that shares are being pushed up pushes up shares…. And in the end, the buybacks lower the share count for the all-important EPS ratio.

The game works wonderfully. Though a game is all it is. It’s not an investment in productive capacity, marketing, or expansion projects. It’s not an investment in people. It’s not an investment that will bring future revenues or earnings or efficiencies. It’s not an investment at all. It just blows a lot of cash on manipulating the one number that the entire world is focused on.

But it’s not even actual earnings as reported under GAAP that is the focus of all attention. It’s an estimate of “forward,” ex-bad-items, adjusted, pro-forma “earnings,” so an entirely fictitious number, helpfully provided by the Wall Street hype machine through its analysts and eagerly disseminated by the media.

The Rest…HERE

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