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Buybacks: The New Magic Beans

Synopsis: Stock buybacks increase corporate leverage. Investors err if they apply the old P/E ratio to the new, now higher EPS, which is solely due to the reduction of outstanding shares. Because leverage has increased, the P/E ratio should fall, as the company is now riskier. Theoretically, via the academic discipline of corporate finance, and used by most Wall Street analysts, management should prioritize its use of cash as follows: …Read More

Sources of Uncertainty (Resulting in Market Volatility)

Over the past several months, I have talked a great deal about volatility. The fact is, volatility increases in direct proportion to market uncertainty. So, today’s volatility is just symptomatic of the confusion and uncertainty now prevalent at least in the near-term outlook. The Trade Issue The talking heads on bubblevision would have you believe that the bickering over trade and tariffs, especially between President Trump and China, is the …Read More

An Overview of Brexit

The Reaction of the European Bourses On June 14th, the FTSE closed at 5923.50.  On June 15th, the world’s major bourses began their run-up in anticipation that “remain” would win in the U.K. referendum.  The FTSE rose 7% from its June 14th level until June 23rd (to 6338.10), the day of the referendum.  The day after the referendum, when the “shock” of “exit” was highest, the FTSE fell 3.1% to …Read More

Recognition shock

The wave of anti-establishment, anti-globalization sentiment, evident in the U.S. primary election cycle, manifest itself bigtime in the U.K. with its vote on Thursday, June 23rd, to exit the European Union (E.U.).  Wall Street hates uncertainty; that is why it loves the status quo.  In the days leading up to this historic British decision, the markets were so confident that the vote would be to “remain” in the E.U. that …Read More

OPEC’s lunacy behind market’s volatility

Market volatility was present throughout January with no calming so far in February. We saw a 565-point intraday slide on the Dow on Jan. 20; then a few days later, the market closed up nearly 400 points! As February began, the Dow gave back most of that 400-point gain only to regain nearly half of it last Wednesday after another rollercoaster ride (376 intraday points). On Friday, the jobs report …Read More

The Fed puts rates on ice

After raising interest rates in December for the first time since the financial crisis and Great Recession, the Federal Reserve has gone into a January freeze. The central bank on Wednesday announced no change in interest rates, meaning the target for the Fed’s benchmark federal funds rate will remain between 0.25% and 0.50%, the range set last month. For consumers, the outcome of this week’s meeting means more of the …Read More