So Who’s Responsible for the Bull Market?

We spoke recently of the fact that the US Sharemarket is the beacon of hope in otherwise ordinary global financial markets.  We have also previously spoken of the comparatively weak fundamentals behind that US sharemarket hitting all-time highs.  A substantial boost to share prices in the US is off the back of companies buying back their own shares to keep the price high.  We’ve just come across the following charts (Courtesy of The Bauman Letter) that highlight the extraordinary extent of this situation and thus highlighting the underlying fragility of this, now, longest bull market in history.

First let’s look at some actual examples:

General Electric has bought 1.3 billion shares.

IBM has bought 1.37 billion of its own shares.

Apple has bought 1.4 billion of its shares.

And….

US Companies have bought no less than $5.1 trillion of their own shares.  For perspective that is over 3 times more than all the USD in circulation…

By comparison, have a look at who the shares buyers were since the GFC compared to the companies:

Both US investors and financial institutions are net sellers of shares.  International Investors just above zero.

You then rightly ask ‘how was this funded?’.  These same companies used 94% of their profits to buy back their own shares.  Not reinvested into capital improvements, expansion or technology and not, from the widely discussed wage stagnation, into higher wages which then flow into the general economy.  Their profits went to inflating their share price to which most of their senior exec’s bonuses are tied.  However, maybe even scarier, is the extent to which it’s been funded through debt, thanks again to central bank stimulus delivering record low interest rates since the GFC.  Debt funded buybacks have risen over 1000% in the last 8 years and corporate debt to GDP is now at its highest on record:

As you can see above, the last two times it reached such heady heights we saw a 50% crash ensue (80% on the NASDAQ in 2001).  The thing is, the ‘height’ this time blows the previous 2 out of the water:

But maybe it’s somehow different this time….