Buy It All Back
Dr. Ed says that since 2009, the S&P 500 has been “highly correlated with the sum” of share buybacks and dividends. “Buyback authorization for February 2015 — of $118.32 billion — were the strongest for [any month ever], in dollar terms. While analysts expect H1-2015 earnings growth to be negative y/y for the S&P 500, I think buybacks could help to turn S&P 500 earnings growth positive.” Also, the last time buybacks reached a monthly record (July 2006), “the S&P 500 advanced 23 percent in the next 14 months before hitting an all-time high.” More: “Repurchases set an annual record of $589 billion in 2007…[Companies] were on pace to spend a sum equal to 95 percent of their earnings on repurchases and dividends in 2014, data compiled in October showed…S&P 500 companies hold $1.75 trillion in cash and marketable securities.”
“European shares rose close to seven-year highs on Tuesday as better than expected German retail sales further buoyed investors days before the [ECB] kicks off a trillion-euro bond buying programme…German retail sales rose 2.9 percent month-on-month and 5.3 percent year-on-year in January, more than economists had forecast…’Euro zone economic surprises have veered from extremely negative to extremely positive in very short order.’” A reuters columnist thinks “investors would be wise to prepare for a more optimistic outcome. Folk wisdom holds that in strong economies stocks do well and bonds do poorly. But years of ultra-easy monetary policy may have complicated the relationship. Indeed, if strong growth reduces the need for new government borrowing and even a brief QE programme reduces supply, market prices might keep rising. So negative yields may last a while longer.” Meanwhile, a Citi strategist says that “the unprecedented distortion that ECB QE is about to introduce to € fixed income at a time of ultra-low yields has still not quite dawned on European credit.” Meanwhile, ultra-low yields have dawned on Buffett.
AAPL: Notes On Cars
“Many people can find $400 for a better phone or, this year, a smart watch, if they’re persuaded that they really want one, but rather fewer can find an extra $40,000 for a better car, or to replace their car every two years instead of every 4 or 8. If you’re in the market for a $20,000 car, there is very little that anyone can do to a car that will put you in the market for a $60,000 car. Cars do not come out of discretionary spending.” Meanwhile, the Wall Street Journal reports that several insurance companies and an auto parts maker have included warnings about the risks of driverless cars in their official corporate filings.
You’ve probably heard the argument that steady core inflation could prevent the Fed from abandoning a rate increase this year. Tim Duy isn’t buying it: “On a 3-month basis, core inflation is at its lowest since the plunge in 2008. Year-over-year inflation has been held up by a basis effect from a jump in early 2014.” And why is core-inflation drifting lower? “The rising dollar may be causing the Fed more headaches than they like to admit.”