US Markets: Buyer of second last resort

Posted: May 28, 2014 in Uncategorized

Well we know that the market is now composed by the buyer of last resort (Federal Reserve) and Hot Money (algorithm trader).

There is a third buyer in the market!

Apart the Federal Reserve and the hot money (high frequency traders) Capital IQ market data suggests that it is the same companies in the SP500 repurchasing their own shares via buyback for an amazing USD $ 160 billion. If we keep on going like this we will beat also the previous peak (guess which year?…you are right 2007!)

Why they do that? To beat estimate in absence of growth (the Share in the Earning per Shares, decrease – improving the ratio). And the CEO and CFO bonus payout is also linked to the share performance.

And it is not that they finance that with extra cash…but creating extra corporate debt .

That explain also why volatility is so low.

So be patient with this rally. Now we are in a blow out phase. Very dangerous – Do not be greedyImageImageImage

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