Toppy Market ??

Discussion in 'Technical Analysis' started by countryBoy641, Apr 11, 2024.

  1. I rarely have the TV sound on.
    But today I do.
    One of the loopy talking heads "Investment Committee" actually said an important backdrop for a bullish outlook are the ubiquitous stock buyback programs.
    OK, a company can do that with excess cash flow. Great.
    But if a company is borrowing money (issue debt) to buy back shares,
    that can be very dangerous.
    The danger being common stock dividends can be cut at any time.
    But that doesn't work for bond interest.
    If a company can't pay bond interest, they are headed into some kind type of bankruptcy.

    And the upside for companies to issue debt to buyback shares is that the
    earnings/share will go up
    . All the officers of the company are off the hook.
    All the retirement packages are tied to this.
    Giant stock awards.
    But what happens if rates on the debt start going up, and don't stop??
    That is called a bear market.
    Hmmm.

    Stock buybacks were illegal until 1982.
    So it's not a piece of financial wizardry nobody thought of.
    It was seen as inordinate risk.
    When it was flipped under Reagan, it was assumed companies
    would do this prudently and responsibly.
    And with a prudent and responsible FED over-seeimg the whole thing.
    But now we are where we are.

    In particular, I remember Boeing getting into a jam, I think the stock slide
    early 2020. People were screaming that the FED should't bail out BA.
    "they did it to themselves."

    BA.jpg
     
    Last edited: Apr 11, 2024
    beginner66 and murray t turtle like this.
  2. SunTrader

    SunTrader

    Loan interest, in most cases of buybacks financed by debt, is tax-deductible.
     
  3. S2007S

    S2007S

    Buybacks have fueled a gigantic amount of gains in this market the last 20 -30 yrs. Strip out buybacks and if still were illegal this market would be 20 to 30% lower!!
     
    countryBoy641 likes this.
  4. Yeah I know.
    What I'm just saying is that the elements of the next bear market are sown but not yet sprouted.
     
  5. schizo

    schizo

    So you're calling the top here solely because companies are buying back their stocks with OPM?
    Does this look like the rates are going up and not stopping anytime soon? :rolleyes:

    Moody's Baa Corporate Yield Relative to 10-Year Treasury Yield
    upload_2024-4-11_13-15-3.png
     
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  6. SunTrader

    SunTrader

    DJT sure got the bear market memo. lol

    Otherwise as Yogi once said, it ain't over till it's over.
     
  7. %%
    Looks like he is right\ on BA tops \LOL\union co\50dma\ LOL:D:D
    NOT a stock prediction or rate or bond prediction, dont need a prediction .
    Forecasts are fine + may help.
    QQQ+ some tech ETFs/ tech stocks are again nicely up/ up trending:D:D
     
  8. Q
    Yes, that's exactly what it looks like.
    (not on your chart, but on mine.)
    Your chart is Baa corporates versus some treasury something, not treasuries
    Best for you put in some study time, bonds.
    And I'm not saying this is the top for equities.
    All that bond market money has to go somewhere.
     
    Last edited: Apr 11, 2024
  9. That's definitely not a head and shoulder top. Not making a comment a direction, just saying that's not a head and shoulder top.
     
    SunTrader likes this.
  10. Yes but the past 4-5 years might be a H&S bottom..
     
    #10     Apr 11, 2024