An Unprecedented Mass of Buybacks

I’m working on the third and final part of the Cult of the Bear, and I was looking for research I thought I posted some time ago. Turns out not.

This is a fascinating discussion of where about a third of the SPX earnings growth is actually coming from: 

"ONE OF THE BIG arguing points of the bulls is the extraordinary strength in corporate earnings. And, no question, we’ve had a spectacular boom in profits. In the third quarter of 2005, to illustrate, operating profits of the S&P 500 were up a neat 11.5%, the 14th quarter in a row of double-digit gains.

However, as the indefatigable David Rosenberg of Merrill Lynch points out, such a splendid performance reflects not so much any inordinate growth of revenues as the impact of an unprecedented mass of buybacks — $456 billion worth of stock repurchases that TrimTabs Investment Research estimated took place last year.

Operating earnings in dollar terms — as against per-share net — actually were up only 7.8% over the comparable year-earlier total. Which, David notes, was the narrowest gain in three years.

The bottom line: there’s a good deal less to the corporate bottom line than meets eye.

This is yet another example of how the headline data can be misleading versus what lies beneath.And that’s before you figure in the disproportionate impact of the energy complex to the SPX year over year gains.

As we have pointed out before, it is somehow, okay to count great energy earnings caused by oil price increases — but not inflation caused by oil price increases. Hmmmm.

The earnings story is far less robust than many are making it out to be.

>

Source:
Hold the Bubbly
UP AND DOWN WALL STREET 
ALAN ABELSON
Barron’s MONDAY, JANUARY 2, 2006
http://online.barrons.com/article/SB113598787824035213.html

Category: Earnings, Finance, Markets

Innumeracy is alive and well and living in the USA

Category: Economy, Psychology

Dow Jones pulls a fast one . . .

Category: Financial Press

Read it Here First: Iraq war could top $2 trillion

Category: Economy, War/Defense

Who’s Dropping Out of Labor Force

Category: Employment

Employment Recovery Continues to be Sub-par

Category: Economy, Employment

Astonishingly Irresponsible Headlines

Category: Financial Press

Consumer Spending and Housing Correlation

Category: Economy, Real Estate, Retail

Dow 11,000

Category: Technical Analysis

Bill Gross Bond Timing Tool

Category: Economy, Fixed Income/Interest Rates