Markets: Rising equities driven by share buybacks?
Ukraine: Political turmoil as government collapses
United States: Mixed data but uptrends intact
United Kingdom: Retail sales slow down
Eurozone: Germany business sentiment rebounds
Economic commentators, politicians and business leaders all agree on one thing: investment in the developed world has failed to keep pace with the recovery in financial markets. There is a surfeit of both capital and labour with unemployment still elevated and companies sitting on record cash-piles, so this cannot be explained by a shortage of “factors of production”. Have companies lost what Keynes called their “animal spirits”? Is it a lack of final demand or decent profitable investment opportunities? Or has the Fed’s easy money policy made it too easy to make money risk free in bonds and equities?
One symptom of this problem is the record number of share buy-backs, where companies buy their shares back from investors. In the first quarter 290 firms, or more than half of the companies in the S&P 500, were net buyers of their own shares. Share buybacks artificially boost earnings per share, by reducing the number of shares outstanding. Once again the vast majority of companies are “beating” earnings estimates this quarter. What this really means is that most “analysts” were wrong or deliberately underestimating earnings to ensure a positive “surprise”.
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