Forget Brexit, This Is The Ticking Time Bomb For The Markets

Sunday, June 26, 2016
By Paul Martin

by Secular Investor
Jun 26, 2016

Low interest rates can be a great tool to get an economy in slow-down mode going again, but there always is an unwanted side effect. If credit becomes too cheap and available for just anyone, there’s bound to be ‘abuse’ in the system, as households (and companies) can spend the borrowed cash on anything they want.

We have already warned you before about the share buybacks on the financial markets, as the increasing profits (per share) are mainly inflated by lower interest expenses and a lower amount of outstanding shares, rather than really seeing a substantial improvement of the business and sector those companies are operating in.

Even though there has been a lot of chatter of a rate hike (which will very likely be completely off the table after the Brexit-vote), S&P 500 companies still seem to be ‘addicted’ to borrowing cash to repurchase shares, and in the first quarter of this year, the 500 companies that are part of the S&P index have spent a stunning $161B on share repurchases, which is the second largest quarterly buyback rate since Q3 2007. And yes, we see the same sort of hubris in the markets today and we don’t think it’s a coincidence the record-high buyback rate was peaking right before the global financial crisis erupted in 2008.

The Rest…HERE

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