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Monday, May 20, 2013

The Least Appreciated Reason for the Current Rally (with Breaded Cat pics)

* To be Breaded means you take a soft piece of bread, make a hole and harmlessly press it into the cat head for all to enjoy ~

Its Monday.. Market keeps going up..

Its much like a music artist selling more CDs or a movie generating bigger profit at the box office -- absolutely no relevance or benefit to anyone not involved.

And there's many reasons why..  We repeat briefly for the sole benefit of new readers:  Fed $$ pumped in, everyday people steered like cattle to generate some kind of return on their nest eggs, a naive gullible belief in some that we're in recovery,etc..
Here's an important reason we mentioned briefly but deserves a little more time to address:


What is that?

Simply,  its companies buying back their own stocks.

We'll let CNBC explain it (in blue font):
"You may want to spare a thought, and a healthy dose of worry, for what is one of the biggest, and least appreciated, reasons for the rally: buybacks...

This year, big U.S. companies have given the go-ahead for $286 billion of buybacks, up 88 percent from the same period last year, according to Birinyi Associates, a market research firm. If the pace continues for the rest of the year, the tally will exceed the record set in 2007.

Every manner of company is caught up in the buying binge, including home-improvement chains, makers of farm equipment and jet engines, airlines, sellers of soft drinks and of hard liquor alike. Not one to miss a hot trend, Apple recently authorized as much as $50 billion of buybacks.
Investors like buybacks because they suggest companies think their stock is cheap. They also help reduce the number of shares outstanding, which automatically increases earnings per share. And higher earnings per share often lead to rising stock prices.

But buybacks are also crucial to the rally for a reason that's not widely known. Companies are one of the few big stock purchasers nowadays. Nearly every other big player in the stock market has been selling more than they've been buying.

Pension funds have been selling. Local and state governments have been selling. Investment brokerages have been selling. And, yes, until recently, even Main Street investors...
In total, U.S. companies, not counting banks and other financial firms, have bought more than $1 trillion of stock in the five years through 2012, net of stocks they've issued."

Think about that -- you have this grandiose stock market breaking records left and right... 15,000...  15,100...  15,200.. etc..   Everyone in power touting this as recovery... and the vast majority of those in the market are selling more than buying..

This means the obvious-- it is the $85 billion a month in asset purchases from that bearded bastard who heads the Fed that is the Sole reason the Dow is where it is vs where it should be if an accurate barometer i.e. 8,000.
So the companies take that money and re-invest in themselves.  The Fed enacts its policy under the guise or rather Lie that it wants to stimulate gob growth and lower unemployment.   Yet there's no directive of threat of ending QE if companies do not start hiring..

Far from it..  Everyone is happy as pie.

Nothing corporations love more than strong share values to entice more investors, a devalued dollar which means greater profits on exports and a demoralized workforce composed mostly of temps and part-timers who are more afraid of losing what they have than to seek out something better.
And as long as the entire corporate workforce works in unison, or rather collusion and makes it extremely difficult for unemployed to find jobs, it also is meant to discourage those already hiring from thinking they will find something better elsewhere.

And no one in Washington cares.

A strong Dow is all that matters.

It means a positive Presidential Legacy and egotistical Library to trump predecessor Presidents.
It means greater profits and returns on investments among those who serve in Congress and the Senate.  Practically every member of Congress-- black or white, male or female, Dem or Rep is Filthy, Filthy rich!  And their money isn't sitting in some bank... Nope...

These soulless creatures invest.  Sometimes they also get shares of stock in exchange for voting certain ways but that's a topic for another day.

And as long as the people aren't screaming in anger or 'squeaking', there will never Ever be any 'grease'  for that wheel..
Corporations, like banks and Investors are masterful squeakers..

Rats and mice Do tend to squeak a lot.

So all is well..  Until corporations begin to sell in masse..

Unpredictable events or irrational panics can easily cause this.

And when it does happen, and it ultimately will, Lord help the everyday person holding on to those stocks at the end of the margin call.