Wednesday, February 10, 2016

Share Buy-Backs & Flawed Analysis:



A refreshing item authored (Associated Press) By Bernard Condon, AP Business Writer – header “ Companies lose billions buying back their own stock Big companies have lost billions buying their own shares”

Here a few clips – keep in mind that I am picking the context that supports my view that share buy-backs are just accounting smoke and mirrors.

Quote: “(over the past three years) Many corporations would have been better off investing that cash in an index fund instead of their own stock. The overall market rose 39 percent over the same period. The companies could also have distributed that cash to shareholders, allowing them to spend what is, in the end, their money.

And it's not just a few big corporate losers accounting for all the pain. The group includes 229 companies in the Standard and Poor's 500 index, nearly half of the companies in the study prepared by FactSet for The Associated Press.

When a company shells out money to buy its own shares, Wall Street usually cheers. The move makes the company's profit per share look better, and many think buybacks have played a key role pushing stocks higher in the seven-year bull market.

But buybacks can also sap companies of cash that they could be using to grow for the future, no matter if the price of those shares rises or falls.

"Whenever you see a buyback, the company always says, 'We think our stock is cheap,'" says Nicholas Colas, chief market strategist at brokerage ConvergEx Group.

They are sometimes so confident that they take out enormous loans just to buy more and more shares. That those shares have now plunged in value is something Colas calls a "great irony" of the bull market.

Among the companies with the biggest paper losses are struggling ones that bought after their stock fell, only to watch prices drop even more. Macy's, the beleaguered retailer, is down $1.5 billion on its purchases, a 26 percent loss. American Express has lost $4.1 billion, or 34 percent. As the price of oil plunged, driller Chevron racked up $2.8 billion in paper losses, or 28 percent.

"The company doing the most buybacks is often not investing enough in its business," says Fortuna Advisor CEO Gregory Milano, a consultant who has written several studies criticizing the purchases. He says most buybacks are "financial engineering" and a waste of money.

The study looked at 476 companies in the S&P 500 index, leaving out the index members that split off parts of their businesses during the period. Among the findings:
Nearly a third of the companies studied, 153 in all, lost $100 million or more on their purchases in three years.

MasterCard has the biggest paper gains from buybacks: $7.9 billion. IBM has the biggest paper losses: $9.8 billion. IBM says it isn't neglecting long-term investments and notes that the money it spent on R&D, big projects and acquisitions last year was triple what it spent buying its stock.

Companies often buy at the wrong time, experts say, because it's only after several years into an economic recovery that they have enough cash to feel comfortable spending big on buybacks. That is also when companies have made all the obvious moves to improve their business — slashing costs, using technology to become more efficient, expanding abroad — and are not sure what to do next to keep their stocks rising.

"For the average company, it gets harder to increase earnings per share," says Fortuna's Milano. "It leads them to do buybacks precisely when they should not being doing it.

And, sure enough, buybacks approached record levels recently even as earnings for the S&P 500 dropped and stocks got more expensive. Companies spent $559 billion on their own shares in the 12 months through September, according to the latest report from S&P Dow Jones Indices, just below the peak in 2007 — the year before stocks began their deepest plunge since the Great Depression.

End quote: the author Bernard Condon can be reached at http://twitter.com/BernardFCondon. His work can be found at: http://www.bigstory.ap.org/content/bernard-condon



Sunday, January 31, 2016

Memo to S&P Dow Jones Indices:



I see a press release that on January 27, 2016 (TORONTO) – TMX Group (TMX) and S&P Dow Jones Indices (S&P DJI) today announced a renewal of the multi-year Index Operation and License Agreement (Agreement) between TSX Inc. and S&P DJI, further extending their long-standing and successful partnership. The Agreement will ensure that market participants will continue to have access to a comprehensive suite of investable indices for the Canadian equity markets, as well as North American and global markets.

One of those indices is the Canadian benchmark S&P/TSX 60 Index which according to the TSX - is designed to represent leading companies in leading industries. So how come a penny stock, Bombardier Inc. BBD.b with a puny weight at 0.16% is still in the index? Why not rename the index to the S&P/TSX59?

Bombardier Inc. is also a component of the S&P/TSX Industrial Index – the other S&P/TSX 60 industrial peers are Canadian National Railway Company, Canadian Pacific Railway Ltd and SNC Lavalin Inc. I suggest that it would be prudent to replace Bombardier Inc. with another industrial sector issuer. – just to keep the S&P/TSX 60 Index balanced. Why not consider CAE Inc., MacDonald Dettwiler and Associates Ltd , Stantec Inc.or WSP Global Inc. Please no more consumer, energy or financial names.

Our chart – is a long term monthly weekly of CAE with a cycle overlay and relative performance study and at 500K + trades per day is a liquid aerospace play.


Monday, January 18, 2016

Defining Bear Markets:



The usual definition of a bear market is that a bear market happens when stocks decline at least 20 percent from their peaks. A correction is when stocks fall 10 percent. According to Ned Davis Research during a study period from January 2, 1900 through December 31, 2010, big corrections in the Dow Jones Industrial Average are actually quite rare.

Dips of 5 % or more totalled 378 or 3.4 per year
Corrections of 10 % or more was 122 or about 1 per year
Bear declines of 20 % or more was 32 or about I every 3.5 years

At Getting Technical our historical market studies dictate that bear markets print a lower low within a rolling 26 to 30 week time window.

Our chart – is a weekly of the S&P500 bounded by a simple 30-week high low price channel. Bull and bear or buy and sell signals on a weekly violation at the close – interim violations are ignored. The current bear in the S&P500 was signaled last August 2015 at the 1990 level. An Elliott Wave A-B-C bear suggests at least two downward violations of the lower price channel with this week testing the first 1867 level of the bottom price channel and then the second and final drop down to support at the October 2014 low at the 1820 level.