SocGen's Edwards: 'Share Buyback Party Is Over'

Thursday, 28 Aug 2014 11:05 AM

By Dan Weil

  Comment  |
   Contact  |
  Print   |
    A   A  
  Copy Shortlink
Societe Generale equity strategist Albert Edwards has been bearish on stocks for some time, and the S&P 500's breach of the 2,000 level this week hasn't changed his tune.

Corporate stock buybacks have played a major role in the market's rise, as the Federal Reserve's low-rate policy has enabled corporations to issue debt cheaply and then use the proceeds to snap up their own shares.

But, "the share buyback party is over," Edwards writes in a commentary obtained by Moneynews. "S&P is now running on fumes."

Editor's Note:
Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

The companies issuing the bonds are "doing what they always like doing with debt in the final throes of an economic cycle," he notes. "They issue cheap debt to buy expensive equity. . . . But a gargantuan funding gap emerges."

So what's the outcome?

"This pro-cyclical process always ends in tears and is regarded in retrospect as typical
end-of-cycle madness," Edwards argues.

That's because once corporate bond issuance fizzles, "share buybacks also stop and one of the biggest drivers for the equity bull market is removed," he maintains.

"The equity bubble has disguised the mountain of net debt piling up on U.S. corporate balance sheets. This is hitting home now QE [quantitative easing] has ended," Edwards adds.

"The end of the buyback bonanza may well prove to be decisive for this bubble. Indeed — is that a hissing I can hear?"

S&P 500 companies bought back $120 billion of shares in the second quarter, down from $159 billion in the first quarter, according to preliminary data from S&P Dow Jones Indices.

Meanwhile, individual investors, who have largely shied away from stocks since the market plunged in 2008, will likely remain reluctant buyers, says Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

Individual investors are "still nervous, they're concerned," he tells CNBC. "Even though we're into this rally over five years now, and they're getting very little if they're sitting in a bank or some alternatives, they are not moving back into the market."

Editor's Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

Related Stories:

© 2014 Moneynews. All rights reserved.

  Comment  |
   Contact  |
  Print   |
  Copy Shortlink
Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Country
Zip Code:
Privacy: We never share your email.
 
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
You May Also Like

John Kasich 2016: 7 Key Political Positions of GOP Presidential Hopeful

Friday, 19 Dec 2014 22:22 PM

John Kasich has been involved in the national scene since the 1980s as a U.S. congressman and popular governor from Ohio . . .

Stocks Rise in Best Week Since October as Energy Industry Gains

Friday, 19 Dec 2014 16:56 PM

Oil and gas companies led the stock market up Friday, helping the Standard Poor's 500 index notch its second-best week . . .

Fed's Williams Sees June as Time to Start Considering Higher Rates

Friday, 19 Dec 2014 15:10 PM

Federal Reserve Bank of San Francisco President John Williams said next June will be the right time to consider when to  . . .

Most Commented
Top Stories

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

 
NEWSMAX.COM
America's News Page
©  Newsmax Media, Inc.
All Rights Reserved