Who is Buying When Markets Collapse?

Unless a market goes “bidless” (See Annoying Acronyms HERE) there is always a buyer when markets collapse.

But who has the guts/cash to buy in a panic?

The answer may surprise you.  And if you look back over the last nine years you’ll see the obvious answer.

The culprit?

Corporate buybacks.

They’ve been the biggest buyers of size and continue to fuel The Most Hated Bull Market in History.

Look at the obvious:  Corporations have been borrowing money at the lowest interest rates in the last 5,000 years.  (No, that’s not a misprint).  And instead of expanding their business, the vast majority have used the cheap money to buy back their own stock.

This serves several purposes:

• It keeps the stock moving up.

• It reduces the number of shares available for trading. (which also keeps the stock moving up).

• It makes the earnings look stronger.

• It allows the CEO to “justify” obscene bonuses.

In a perverse way you could say that stock buybacks are all about the CEO.  And to prove the obvious, guess what most corporations have announced they will do as a result of Trumps new tax law in 2018?

Did you guess “buyback their own shares?”

The truth is they should rename buybacks to “financial engineering.”

It allows them to fudge the numbers, giving you a false sense of wealth inequality.

And, for the record, the biggest buyers of the meltdown in early February was…Ta Da!  Corporate buybacks.

Cheap money and tax incentives aren’t going away anytime soon.  But when they do, you want to be out of the market.

It will go bidless.

Stay ahead of this oncoming train wreck by reading Simplifying Wall Street in Plain English (HERE).

You’ll thank us later.