It takes 50,000 nuts to put a car together, but only one to scatter them all over the road. – Darryl Somers

We have habitually stated that many companies were and still are using share buyback programs to manipulate earnings, by reducing the float of outstanding shares.  This gambit was not as prevalent before, but today it’s gaining traction at a rather astounding pace. Companies borrow money in contrast to using the cash they already have on hand, to repurchase their own shares; this modern form of alchemy turn’s losses into profits or can be utilized to make moderate profits appear to be spectacular in nature. This gives this bull market another bullock’s reason to trend higher; yes, we are in the midst of what appears to be a correction, but the market is trading at a lofty level in comparison to 2011. This is roughly the time frame when this activity started to gain steam.  

We are now in the paradigm of lies and deceit.  In these conditions, the truth does not thrive. How can truth or reality have a chance under such conditions? Every piece of data that can be manipulated has been or is being manipulated to create the impression that all is well.

Many experts predict that share buybacks and dividend payments by US companies are expected to reach new highs in 2015.  The troubling factor is that it appears that companies are taking the easy path in their quest to boost profits. Rather than investing in the future, they are spending inordinate sums of money on buying back their own shares.

Goldman Sachs forecasts an 18% jump in buybacks for 2015. David Kostin, chief U.S. equity strategist at Goldman, stated the following in a note to clients. 

“Corporate activity in early 2015 supports our view that the S&P 500 will return more than $1 trillion of cash to investors this year,”

The Fed’s balance sheet has swelled to roughly $2.4 trillion since the start of QE. S&P 500 companies have spent $2.41 trillion on buying back their own shares since the beginning of this bull market. Thus, it would be fair to state that US corporations have taken over from where the Fed left off. 

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