Updated: Dec 6, 2019
One of the things we have been studying based on our belief that a decade of lose monetary policy ultimately leads to capital mis-allocations and ultimately asset price distortions. This occurred in the LAST 2 BUBBLES in 2008/09 and 1999/2000. Well, it appears it is happening again via stock buy backs here in the US.
Lets first look at what US corporate have done over the last few years as depicted in the following chart. As you can see when revisions are excluded corporate profits have been falling not rising. However, earnings which is profits/share has been rising up until this year because the "shares" has been falling tied to massive share buy backs.
As the following 2 charts show corporate debt has been rising as has share buy backs causing the perception of earnings per share rising while profits haven't since 2014 and are nearly flat.
So while profits have fallen profits per share rose as the "shares" have fallen. The table above on the right shows the largest buyer of stocks has been companies buying back stock NOT investors since 2008/09.
The net effect since 2011 has been a $3.00 boost to profits per share and nearly a 10% DECREASE in share count which has been the driver of the boost! This shown in chart below as left hand side is profits/share while on right side is share count.
So it begs to question what happens when debt laden corporate america stops borrowing to buy back shares to boost profit per share? Well you can figure it out as the Fall of 2018 as rates rose began that process.
For more insights see our website and disclosures found there at BCA.