Friday, March 23, 2018

In Wall Street We Trust. Yes Again...

There was only one lesson the Idiocracy had to learn after 2008 and they couldn't even learn that much...

All of Trump's tax cut is going down the stock buyback shit hole. 

Any questions?

Wall Street has used many gimmicks to keep the casino artificially levitated, for the sole purposes of dumping junk onto the unsuspecting sheeple. In doing so, they have created a false sense of liquidity...

If that's what you want to call it:

Case in point, despite the highest volatility in two years, there have been no down Fridays in the past six weeks. This is not a prediction, merely an observation...

Here is where I'm going with this:

"Investor interest in the weeklys has surged since 2009, with average daily volume of just the S&P 500 weekly options exceeding 520,000 contracts in 2017, a 35% increase over 2016"

Blue arrows point to Fridays. The last down Friday is circled (February 2nd). Lower pane shows down volume ratio:

Why does this happen? I hypothesize two reasons: the most obvious being that Friday is weekly options expiration. The second being that Friday is when most IPOs are priced. A convenient intersection of expediency and peak weekly leverage. 

This chart shows the net point gain by weekday for the past three years. Wednesday is VIX opex. We see that the two opex days have the best point gains, and the two days following opex have the lowest point gains - in direct proportion to the prior day's gains. Wednesday/Thursday being particularly stark:

In other words, using the weekly options, Wall Street has essentially cornered the market. In a low volatility, low volume market, this type of contrivance can generate a false sense of liquidity.  

The other gimmick that has been employed is the mega share buyback. On a net basis corporate share buybacks can account for ALL of the S&P 500 gains since 2009. 

And yet, we see that the buyback fund is no longer keeping pace with the S&P 500. Meaning companies are wasting more and more money to create less and less effect. 

"The Trump tax cuts aren’t going into new investment — in fact, remarkably, investment has fallen in January in the US — but into share buybacks that reward shareholders and goose the share price to the advantage of company executives via their remuneration packages."

"But what no one seems to have expected...just how massive the rise in share buybacks actually is...2018 will see — by far — the highest level of share buybacks in US corporate history, smashing the previous record of 2007 and topping $840 billion"

The bottom line is that all of these gimmicks have a limited shelf life before they turn back into pumpkins:

This is record buybacks. Can't you tell?

And then it gets back to the increasingly arduous challenge of finding the next dunce to follow...