Tuesday, January 19, 2016

All Ponzi Schemes Collapse Suddenly and Violently

Stock buybacks papered over the lack of investment and economic devastation caused by mass outsourcing, now obliterating income statements. Who is the marginal buyer of over-priced junk?

Stock buybacks
Private equity
IPO underwriters
Central Banks
Carry trades
Momentum strategies
Dumb money
Daily oil rally ending lower
Wall Street short-covering for chump change

Ponzi schemes collapse suddenly, because they have no value. They are a liability without an asset. Inbound liquidity hides insolvency, temporarily, as the marginal tool throws their life savings at the Ponzi scheme. When liquidity reverses, it all collapses. Stock buybacks which generate fake profit growth, at the expense of economic growth, ultimately yield to revenue decline as they did in 2008, and are doing so now. 

"Since 2009 companies have spent $2.4 trillion on buybacks...Companies spent more than $550 billion on their own stock in 2014, boosting earnings by 2.3 percentage points."

ZH: Jan. 18, 2016: Art Cashin:
"it’s earnings season and because of that many corporate buybacks have to be paused during this period. That removes an important potential support for the market. Over the last year, companies buying back their own stock have put more money into the market than all of the public has. The cessation of those buybacks is probably a reason why we’re seeing the rather sharp selling that has occurred."

Anyone who believes in QE4, the "Yellen Put"(option), or any other form of Central Planning for casinos, should be shitting their pants right now. No country has done more to prop up their casino than China - including banning short selling, banning institutional selling, halting thousands of stocks at a time, and outright buying of stocks using government funds. And yet the market still went down. It's now back in bear market, down -45% from its all time highs.

Why? Because the marginal buyer of stocks determines the value of ALL shares outstanding, not just the ones they bought. Therefore, even if the government owned 90% of the shares, the marginal share sale would set their value. Hence when the fundamentals are decaying on a daily basis, the marginal bid goes lower.

"Don't worry about China. We're decoupled. From reality"

All Central banks achieved for seven years was to create a temporary momentum feedback loop that conned the masses back into the casino amid deteriorating economic fundamentals which are now feeding back into revenues and profits, in real-time. 

And now, price momentum is going in reverse. Heading for a no-bid market as fundamental profit decay is ahead of price decay for the first time in stock market history...

"Buy, buy, buy"