Courtesy of Pam Martens.
The U.S. stock market looks more and more like that box of pasta on the grocer’s shelf. There’s less of it but it costs more.
According to data from Birinyi Associates, for calendar years 2006 through 2013, corporations authorized $4.14 trillion in buybacks of their own publicly traded stock in the U.S.
That should be good, right? Earnings are boosted on a per share basis because of fewer shares, making corporate prospects look brighter. Unfortunately, according to Standard and Poor’s, net equity issuance (the difference between buybacks, leveraged buyouts, etc. and Initial Public Offerings or secondary offerings) has been shrinking as corporate debt has been rising to fund those stock buybacks.
In 2013 alone, corporations authorized $754.8 billion in stock buybacks while simultaneously borrowing $782.5 billion from credit markets. Jeffrey Kleintop, Chief Market Strategist for LPL Financial reports that corporations are now the single largest buying source for all U.S. stocks and the swift pace of buybacks has continued into this year with Standard and Poor’s 500 companies buying back approximately $160 billion in the first quarter.
In addition to concerns over taking on corporate debt for reasons other than growing the franchise, investing in innovation, upgrading technology, etc. – there are also growing concerns over the use of dark pools to conduct these gargantuan share buybacks.
A dark pool is a private, unregulated trading venue that functions like a stock exchange by matching buyers with sellers – but it does so in the dark, without showing its bids and offers on stocks to the public. That has the potential for a great deal of price manipulation.
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