Where Oh Where Has the Rally Gone?…”The big players use stock buybacks to save themselves”
David Haggith
TheGreatRecession.info
March 29, 2016
Last week began the blackout period for companies buying back their own shares, as we are nearing the end of a quarter, when stock buybacks are put on hold. It also began the bust of the stock market’s recent rally. If you followed my last article, you’d see that this is exactly what I expected the stock market to do because nearly all of the buoyancy in the recent market rally has been created by companies buying back stocks and sometimes focusing the buybacks on specific major shareholders.
The big players use stock buybacks to save themselves
Take a look at the chart above, which shows how the stock market is almost exactly tracking stock buybacks. Note the last time buybacks hit a zenith (in 2008) similar to the present. As soon as stock buybacks ended, the stock market crashed. As the market grew more desperate, there were more buybacks by corporations in an attempt to keep their share prices rising but perhaps also as an engineered exit for major stockholders. (Use the company money to buy back shares so that massive buybacks don’t have any negative impact on stock prices.)
With some stock buybacks currently focusing on buying back shares from major shareholders at a set price (versus buying back shares on the general open market), you don’t have to be a genius to realize those major company owners, who usually have a seat on the board, must want to get out in a hurry, now, too.
The Rest…HERE
