Technically Speaking: Bulls Run As Liquidity Floods Market

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Bulls Liquidity Market, #Technically Speaking: Bulls Run As Liquidity Floods Market

Not surprisingly, the most prominent players in buybacks are the ones that need to subsidize their earnings the most to beat estimates; technology and financials.

(Click on image to enlarge)

Bulls Liquidity Market, #Technically Speaking: Bulls Run As Liquidity Floods Market


Net Purchases

While share buybacks primarily are for the benefit of corporate insiders “cashing out,” it does have the effect of supporting asset prices as well. As I discussed in 2019, when stocks were hitting records amid record share repurchases:

“What is clear, is that the misuse, and abuse, of share buybacks to manipulate earnings and reward insiders has become problematic. As John Authers recently pointed out:

‘For much of the last decade, companies buying their own shares have accounted for all net purchases. The total amount of stock bought back by companies since the 2008 crisis even exceeds the Federal Reserve’s spending on buying bonds over the same period as part of quantitative easing. Both pushed up asset prices.’

In other words, between the Federal Reserve injecting a massive amount of liquidity into the financial markets, and corporations buying back their own shares, there have been effectively no other real buyers in the market.”

Bulls Liquidity Market, #Technically Speaking: Bulls Run As Liquidity Floods Market

I bring this up for two reasons:

  1. The buybacks ARE SUPPORTIVE of asset prices in the short-term; and,
  2. We just had to “bailout” these companies because they couldn’t weather an economic downturn as they have spent years piling into debt and buying back shares.

While Janet Yellen is okay with the buybacks, as she thinks the banks are healthier now, why doesn’t anyone ask the question:

“If banks are so healthy, why do they need a constant monetary stimulus to remain in business and a bailout every time the economy declines?”

It doesn’t sound very healthy to me. But for now, there is only one headline that matters:

Bulls Liquidity Market, #Technically Speaking: Bulls Run As Liquidity Floods Market


The Risk Of “No Risk”

The problem of assuming there is “no risk” is that it leads to “investor complacency.”  As discussed in “Willful Blindness:”

“Willful blindness, also known as willful ignorance or contrived ignorance, is a term used in law. Being ‘willfully blind’ describes a situation where a person seeks to avoid civil or criminal liability for a wrongful act by keeping themselves unaware of the facts that would render them liable or implicated. 

The phrase ‘willful blindness’ also means any situation in which people avoid facts to absolve themselves of their liability. 

‘Investors regularly dismiss the ‘facts’ which run contrary to their current opinion. In behavioral investing terms this is ‘confirmation bias.’ 

As markets rise, investors take on exceedingly more risk with the full knowledge that such actions will have a negative consequence. However, that ‘negative consequence’ is dismissed by the ‘fear of missing out,’ or rather F.O.M.O.

As ‘greed’ overtakes ‘fear,’ investors become emboldened as rising markets reinforce their convictions. When the negative consequence occurs, instead of taking responsibility, they blame the media, Wall Street, or their advisor.”

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Carl Schwartz 1 month ago Member's comment

Yup!! Bull's run for exit is next!!