# The Crash Chronicles



## Uncle Festivus (30 October 2017)

Comrades, capitalists & corporatists.

It's that time of the cycle again when extraordinary becomes the new norm.

Here cometh the piper?

http://www.visualcapitalist.com/63-trillion-world-debt-one-visualization/


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## Uncle Festivus (30 October 2017)

Irrational exuberance exhibits.....

A bowl from China's Song Dynasty sold at auction for $37.7 million on Tuesday, breaking the record for Chinese porcelain, auction house Sotheby’s said.


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## Uncle Festivus (3 November 2017)

Back in the real world, with several hard data prints indicating structural peaks and rolling over, perhaps it's time to trend the NFP for the usual once a month hullaballoo over a statistic that isn't a statistic - it's a guess. They will get their bounce and all will be fine again.....





Everyone? has a job but get paid a pittance. The globalists are ecstatic!


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## explod (3 November 2017)

Very timely Hunk,  the stars are certainly allovadaplace.  

Finding it hard to look so just keep saving the old silver coins.  Hope alls good up in them hills


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## Uncle Festivus (22 November 2017)

Yes, bunkered down & ready for the fireworks, very soon. The swamp critters are completely in charge now so the hubris of invincibility with the perpetual central bank Put will blow the top off regardless of any other measure(s) indicating, yet again, a multitude of bubbles that only benefit the 1% er's.

I'm surprised that there hasn't been a decent tantrum to try and stay the not so invisible hand of the Fed to raising rates and, ahem, reducing their balance sheet, which is a contradiction in terms if ever there was one - it's hardly balanced.

I guess this one will be the doozy of all flash crashes and corrections when it does come, and I think we are closer to that time than most think, although there will be all sorts of circuit breakers going off and wringing of hands as to what will happen when said circuit breakers are 'reset'.

The fatherly CB's will once again step up with their bazookas and 'whatever it takes' but this time it's game over, the end of this episode of 'I owe you nothings' fiat? And we won't even go to virtual currencies - another bubble to be burst....

It's going to get messy....


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## Uncle Festivus (25 November 2017)

Even bubbles are relative to reality - they burst at extremes of complacency.

11 Charts


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## Uncle Festivus (6 January 2018)

Are you ready for reality?

Nuff said.


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## Uncle Festivus (6 January 2018)

Global debt soared to a record $US233 trillion in the third quarter of 2017, according to a report from the Institute of International Finance.

That marked a $US16.5 trillion – or 8% – increase from the end of 2016. It also reflected record highs for private nonfinancial sector debt in Canada, France, Hong Kong, Korea, Switzerland, and Turkey.

One possible side effect of this massive debt burden could be a reluctance from central banks to tighten lending conditions, the IIF says. It points out in the report that because a prolonged low-interest-rate environment contributed to the swelling of debt levels, sovereign banks may be reluctant to rock the boat by hiking.

“High debt levels could limit the pace and scale of policy tightening, with central banks proceeding cautiously in an effort to support growth,” a group of IIF analysts led by the executive managing director Hung Tran wrote in the report.


Read more at https://www.businessinsider.com/glo...ebt-to-gdp-falling-2018-1#vokya3HlAoQYR40c.99


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## Uncle Festivus (6 January 2018)

NYSE Margin Debt.

It could be argued that the NBER will/should eventually agree that there was a mild recession in 2016, as shown by several data sets eg transports/freight rail etc. 

Spikey bits followed by down bits......trigger?


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## Uncle Festivus (6 January 2018)

Trump _IS_ the Black Swan

Trade deficit getting bigger, and will blow out even more with the USD falling, which will also give the Fed their much missed and confused 2% inflation through increased imported goods prices (paid for by more consumer debt no doubt).

Fiscal deficits about to explode also - the US will be increasingly reliant on the good will of foreign debt buyers to fund an expanded Trump fueled debt binge.

It seems like Trump is trying to extrapolate the same methodology used in his debt based property dealings into some sort of global debt based ponzi? And with all good ponzi schemes, it relies on finding bigger fools to offload on to.


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## Uncle Festivus (6 January 2018)

Leverage up like a good corporatist, be damned the consequences.




Exponential = unsustainable.


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## Knobby22 (6 January 2018)

Uncle Festivus said:


> Trump _IS_ the Black Swan
> 
> Trade deficit getting bigger, and will blow out even more with the USD falling, which will also give the Fed their much missed and confused 2% inflation through increased imported goods prices (paid for by more consumer debt no doubt).
> 
> ...



I agree 100% however as with Bond, Greece, etc. the debt binge leads to a big bubble first. Considering that he has only just past the tax cut and is yet to start the infrastructure, I reckon this bubble is only halfway.


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## Uncle Festivus (8 January 2018)

Knobby22 said:


> I agree 100% however as with Bond, Greece, etc. the debt binge leads to a big bubble first. Considering that he has only just past the tax cut and is yet to start the infrastructure, I reckon this bubble is only halfway.




I'm not so sure - it's looking like the last stages of the last fake bull run on fake Fed liquidity back in 2008 - it's going vertical = unsustainable!

He's not saying how he's going to pay for all of it, but the treasury does - with foreign debt at higher rates! $Trillion dollar deficits forever, until it breaks.

Mostly irrational FOMO right now, they will take it till it breaks.....

Global markets are not only priced for perfection, on a P/E basis it will have to last for several more decades without any recession at all?

Unlike the old days (like 2008) things will move far faster this time around due to tech - it could all be over in a matter of days, if it were not for circuit breaker rules kicking in. If a market is suspended they won't be able to sell, and when it does open all hell will break lose immediately.

At the rate it's going, the reckoning is close?


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## So_Cynical (8 January 2018)

Markets are forward looking so one could argue that the continuing run up in the US was in expectation of the infrastructure spend and tax cut, buy the rumour sell the fact, Trump is a nut after all..no getting around that.


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## Uncle Festivus (10 January 2018)

So_Cynical said:


> Markets are forward looking so one could argue that the continuing run up in the US was in expectation of the infrastructure spend and tax cut, buy the rumour sell the fact, Trump is a nut after all..no getting around that.




Yes, but how much is to be 'priced in' based on future maybe's? Several people have done the sums - it should add about 10% to index values, and that was back when the Dow was circa 20K. So we are well and truly passed the 'actual' value stage and into the topping phase - I've seen it back in 1987, 2000, and 2007 - all the same just different actors at the helm of the savior society's eg CB's.

What _has_ been priced in is that the tax & infrastructure biz _will_ improve the economy, which is not a certainty, esp when they will have to pay for it by printing or donations? As of right now all the tax receipts received only cover health, defense and education so any reduction in tax will mean someone misses out, most likely health & education? Treasury issuance will explode!

The new figure going around is 12/1 - that's how much the various central bank balance sheet expansions cost V return ie for every $12 in 'assistance' they get $1 in 'growth'.

Then there are the bond guys sitting on the edge ready to pull the trigger if it does in fact become a bond bear - one sided massive leverage hanging round the exit door - not going to end well.


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## Uncle Festivus (12 January 2018)

OK, so it's Dow 1K _per week_ now??

Meanwhile, back in the real world - nothing to see here?


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## Uncle Festivus (13 January 2018)

Paying more for your leverage - good luck with that!



> The two-year Treasury yield jumped above 2 percent, marking a rebound to a key psychological level last seen just as the U.S. sank into the depths of the financial crisis in September 2008.
> 
> *Now, in a development that may have seemed unthinkable during much of the economic recovery, the two-year note provides investors with more income than dividends on the S&P 500 Index*.


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## Uncle Festivus (13 January 2018)

Super Mario - yikes! Why do all central bankers look like death?


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## Uncle Festivus (16 January 2018)

Some people understand it and some do not?






> Investors stand to lose a lot if inflation rises further over the next few years because today’s still low yields won’t compensate them for the loss of purchasing power. And they’re getting just a wee-bit nervous about it.
> 
> This nervousness will be one of the factors driving the 10-year yield higher. There are other factors too, including the increased supply of government bonds needed to finance the larger deficits following the tax cuts, and the biggie: The Fed’s QE Unwind, or “balance sheet normalization.” The scheduled balance-sheet shrinkage accelerates this year to:
> 
> ...




https://wolfstreet.com/2018/01/12/m...e-fed-dudley-gets-nervous-fires-warning-shot/

Balance-sheet shrinkage since the October announcement - so far, the Fed allowed $17.5 billion of Treasuries to roll off. Yeh right, essentially zero! No wonder nobody listens to Fed speak anymore and are blowing up the markets!

The Chinese 'not buying US T's anymore' rumour was quickly downplayed and refuted, yet for any creditor to the US the weakening USD is starting to get painfull - watch bonds flip to a full blown bear....Treasury will have to find, or print, another $500B this year alone, for a total of over $1Trillion for deficit funding - ad infinitum and compounded by the GOP tax 'gift for the wealthy'.



> Even normalized interest rates would crush the US budget under interest payments. Analysts have calculated that if the interest rate on Treasury debt stood at 6.2% – their level in 2000 – the annual interest payment on the current debt would nearly triple to $1.3 trillion annually.




When the bears have not only capitulated but have also gone long the bubble, and the bulls are actively calling for a 'healthy' correction, you know there are a lot of itchy trigger fingers ready to dump bigly.......perhaps any week/day now? Closer to the end of the GFC than to the beginning?


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## CanOz (17 January 2018)

https://www.themacrotourist.com/posts/2018/01/16/fang/


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## Uncle Festivus (17 January 2018)

Itchy, fat fingers last night?

Lovely, and predictable, Fiat Extinction Event happening in Crypto's, probably nothing.

But other bubbles are still gettin' goosed n juiced, even after a Dow 400 pt round trip, and the obligatory re-ramp back to unchanged, then the futures ramp on top.  Just another BTFD moment?

Cooler & smarter heads can see the writing clearly.....

https://www.hussmanfunds.com/comment/observations/obs180115/

Priced in, baked in and ALL in!


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## Uncle Festivus (18 January 2018)

Who will pay for the bottom line subtractors - oil & interest rates?

Narrowing exit doors for the bubble bull brigades.....






> LONDON, Jan 16 (Reuters) - Hedge funds and other money managers have boosted their bullish position in oil to a *new record*, but with crude taking over from fuels as the main target of fresh buying.
> 
> Hedge funds boosted their net long position in the six most important futures and options contracts linked to crude and fuels by 67 million barrels to *a record* 1,399 million barrels in the week to Jan. 9.
> 
> ...




http://tmsnrt.rs/2D8l6V7

I think Boeings' products use this stuff too, but doesn't seem to affect the share price at all, yet?
5% per day is completely sustainable....


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## Uncle Festivus (23 January 2018)

Oh dear, somebody is looking at the hard data.......is the tide going out? Ex the oil spike, deteriorating fundamentals, but tax cut's continue to get priced in even though fully priced in.

https://www.marketwatch.com/story/w...flow-growth-is-bad-news-for-stocks-2018-01-22


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## Value Collector (23 January 2018)

Uncle Festivus said:


> Are you ready for reality?
> 
> Nuff said.
> 
> View attachment 85513




What do you think Boeing is worth?


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## Value Collector (23 January 2018)

Value Collector said:


> What do you think Boeing is worth?




Because Boeing has been delivering a knockout punch with its 787 and 737, they have a super strong order book, and look like the clear winner for the next 10 years or so.


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## Uncle Festivus (23 January 2018)

Dot.com 2.0 or Investing 101 2018 edition - make sure your backers have deep pockets? What's $4B a year among mates?

The Tesla, Uber business model, but the chart looks a lot like a few 'traditional' companies going vertical?


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## Uncle Festivus (23 January 2018)

Value Collector said:


> Because Boeing has been delivering a knockout punch with its 787 and 737, they have a super strong order book, and look like the clear winner for the next 10 years or so.




No lift under the wings in recessions, which would mean 20 years of no recessions?


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## Value Collector (23 January 2018)

Uncle Festivus said:


> No lift under the wings in recessions, which would mean 20 years of no recessions?



What do you mean by that ?


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## Uncle Festivus (29 January 2018)

Value Collector said:


> What do you mean by that ?



2 things - currently 10 years since the last recession, so they are pricing another 10 years of no recession to get their money back at current prices, plus any hint of recession the order books of airlines go into free fall, and orders evaporate, literally overnight. Like many other stocks in this melt up, they are priced for not only perfection but absolutely no negatives like rising rates and recessions.

Start of the trade wars and 'he who has the weakest currency wins' wars. This is a lose/lose for everybody.

You can't 'wish' for a weaker currency when you are the owner of the world's currency - the Fed is finally getting the inflation it deserves....


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## Value Collector (29 January 2018)

Uncle Festivus said:


> 2 things - currently 10 years since the last recession, so they are pricing another 10 years of no recession to get their money back at current prices, ..




I don't think they are priced on investors getting their money back in 10 years, they are priced on the belief that Boeing will survive through a recession, and be profitable before and after, and any recession would be a minor glitch in the next 20 years of reporting.

you have been calling a recession for years now, and eventually we will get one, but just like the GFC its not the end of the world, wheels keep turning and dividends keep coming in.


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## Value Collector (31 January 2018)

Uncle Festivus said:


> plus any hint of recession the order books of airlines go into free fall, and orders evaporate, literally overnight. Like many other stocks in this melt up, they are priced for not only perfection but absolutely no negatives like rising rates and recessions.
> 
> .




Also, I just wanted to point out that Boeing has paid a dividends every year since 1942.

Though out all the wars and recessions it has never missed a dividend.


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## Uncle Festivus (9 February 2018)

Value Collector said:


> I don't think they are priced on investors getting their money back in 10 years, they are priced on the belief that Boeing will survive through a recession, and be profitable before and after, and any recession would be a minor glitch in the next 20 years of reporting.
> 
> you have been calling a recession for years now, and eventually we will get one, but just like the GFC its not the end of the world, wheels keep turning and dividends keep coming in.




Actually the GFC was the end of the financial world as it was. It's taken trillions in more debt by public and private entities to keep the Ponzi going, until this week.
You can't un ring the leveraged debt bust bell now that it's been rung.
The wheels can and will stop when the final implosion happens. Btw, any company that pays divs from debt instead of fcf is a dud and will eventually fail.
The fallout from the bubble pop is just beginning.


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## notting (9 February 2018)

Just imagine how excited Ralph must be now!!
Buy the way those food fights are absolutely awesome to be involved in.
Breakfast ones are the best.  The air is just full of toast!  So funny.


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## Value Collector (10 February 2018)

Uncle Festivus said:


> Actually the GFC was the end of the financial world as it was. It's taken trillions in more debt by public and private entities to keep the Ponzi going, until this week.
> You can't un ring the leveraged debt bust bell now that it's been rung.
> The wheels can and will stop when the final implosion happens. Btw, any company that pays divs from debt instead of fcf is a dud and will eventually fail.
> The fallout from the bubble pop is just beginning.




Let me know when Boeing cancels it’s dividends, until then I will assume I am correct and the world hasn’t ended


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## Uncle Festivus (16 February 2018)

Value Collector said:


> Let me know when Boeing cancels it’s dividends, until then I will assume I am correct and the world hasn’t ended



It's quite simple - it will keep going while ever there is faith in the Ponzi. The fed has again folded and put back liquidity this week, hence the bubble reflation.
While ever the USD keeps going lower and ust10 keeps going higher then at some stage real soon the real correction will start. The final stage of the GFC.
The markets are completely broken now, there's just algos, bots and corp buybackers in there - the swings just take out retail stops immediately.
Keep believing in sunshine and lollipops and the sheepels and muppets will get burned again, just like when the GFC started.


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## Value Collector (19 February 2018)

Uncle Festivus said:


> It's quite simple - it will keep going while ever there is faith in the Ponzi. The fed has again folded and put back liquidity this week, hence the bubble reflation.
> While ever the USD keeps going lower and ust10 keeps going higher then at some stage real soon the real correction will start. The final stage of the GFC.
> The markets are completely broken now, there's just algos, bots and corp buybackers in there - the swings just take out retail stops immediately.
> Keep believing in sunshine and lollipops and the sheepels and muppets will get burned again, just like when the GFC started.



“The markets are completely broken” ????

You are living in fantasy land man, look around, every where you look products and services are being produced, delivered and consumed.

And the the companies producing and delivering them are booking profits and paying dividends.

Sure the levels of business activity will fluctuate and the prices the companies trade at will fluctuate, but the a mixed portfolio of solid companies will perform well over time, and if you aren’t on board you will miss out.


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## explod (19 February 2018)

Spot on Uncle but you cannot help the blinkered.  Empty shops here everywhere at Frankston.  Brother-in-law very unhappy with his house purchase $500,000 just south west of Geelong in 2010,  wants to shift but best offer $280,000.   Units in Perth dropped in half in just 18 months.   Increasingly you can buy a coffee for $1.00

Yep great


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## luutzu (19 February 2018)

explod said:


> Spot on Uncle but you cannot help the blinkered.  Empty shops here everywhere at Frankston.  Brother-in-law very unhappy with his house purchase $500,000 just south west of Geelong in 2010,  wants to shift but best offer $280,000.   Units in Perth dropped in half in just 18 months.   Increasingly you can buy a coffee for $1.00
> 
> Yep great




A $500K house is now unheard of in Sydney. And that's your typical fibro/clad/brick veneer 3 bedders over some 40 years old.

The typical price around where I live now sells for about $2K per m2. It's higher if the house doesn't need a bulldozer or some $100K in reno just to make it safe to live in.  So a typical house on a 600m2 lot goes for $1.3m to $1.5m... 

The stats don't show that people are getting a whole lot richer, so it just doesn't make sense.

News report are saying that houses in Sydney are "cooling", dropping... I just don't see it. I mean I do see it not going higher but staying still is not exactly dropping. 

And coffee still cost over $5. Well, unless you go to IKEA and get one with a danish for $2.50. I'm still trying to figure out whether their drinks come with free refill or not... it should as it's in the open. The rasberry soda is pretty dam good. Don't know about that $1 hotdog though.


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## brty (20 February 2018)

Explod,
"Brother-in-law very unhappy with his house purchase $500,000 just south west of Geelong in 2010, wants to shift but best offer $280,000."

If something is JUST south west of Geelong, and cost $500k in 2010, I'd almost be prepared to offer $300k cash, sight unseen today. If you can point me to the REA ad I would take a keen look!!

I know the area very well and already have investments there. I can tell you places near Geelong have doubled in price since 2010, so has Winchelsea, pretty much to the west of Geelong. Anything Torquay way has doubled to tripled since 2010, it is South of Geelong.

If you are talking Portland, then it should not be in the same breath as property in or near Geelong. It is the only place in Southern Victoria I can think of that has had significant price reductions, due entirely to the uneconomic smelter and rising electricity prices, a unique situation.


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## Uncle Festivus (28 February 2018)

Value Collector said:


> “The markets are completely broken” ????
> 
> You are living in fantasy land man, look around, every where you look products and services are being produced, delivered and consumed.
> 
> ...




Yes, it is fantasy land. So the Dow has intraday swings of 600 points = normal? Intraminute swings of 100 points = normal? 

Do you know what the 'debt to equity' ratio's are for all these booming companies? How about the P/E's, especially considering that the E part has been fudged by buybacks bought with debt? Or the $67TRILLION of public & private debt in the US - how much would another 1% of 'normalised' interest be on that debt?

The Fed has already lost control of the cost of debt, the market is pricing in how much it is going to cost the government when trying to pay for tax cuts and infrastructure spending that they can't afford?

Pension funds would get wiped out with a sustained market fall over 10%, hence the PPT cabal reflation attempt.

UST10Y almost at 3% now - I give it till April, being generous, for the 1Q GDP figures to fully show the impact of a zero bound savings rate.


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## Value Collector (28 February 2018)

Uncle Festivus said:


> How about the P/E's, especially considering that the E part has been fudged by buybacks bought with debt?




How do buy backs fudge earnings?


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## luutzu (28 February 2018)

Value Collector said:


> How do buy backs fudge earnings?




I think he meant Earnings per Share: Same earning amount but less share outstanding so higher EPS.

It also reduces the Equity, as you know. 

One or both of those measures align with long-term "incentives" so management aren't always looking out for shareholders' best interest. Not that buy-back doesn't have its place and can be a wonderful thing when management see no other opportunity to deploy cash than buying a company they know best... 

When used right, buybacks are great for shareholders, BUT... 

There's the debt binge to buyback stock Uncle talks about. Then there's also the financial play rather than investing in R&D, investing in the workforce, nicer chairs, a bonus or two for the labour force (as opposed to management incentives and bonuses).


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## Value Collector (1 March 2018)

luutzu said:


> I think he meant Earnings per Share: Same earning amount but less share outstanding so higher EPS.
> 
> It also reduces the Equity, as you know.
> 
> .




It doesn’t fudge earnings per share either, the increase in earnings per share is genuine.

It only reduces equity if money is being borrowed to buy back shares, but returning capital to shareholders through buy backs and replacing it with some low cost long term debt isn’t a bad thing, having a good balance between bonds and shares in the capitalsation of a company is good for shareholders.


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## luutzu (1 March 2018)

Value Collector said:


> It doesn’t fudge earnings per share either, the increase in earnings per share is genuine.
> 
> It only reduces equity if money is being borrowed to buy back shares, but returning capital to shareholders through buy backs and replacing it with some low cost long term debt isn’t a bad thing, having a good balance between bonds and shares in the capitalsation of a company is good for shareholders.




I know, the EPS is genuine in terms of maths where you get the Earnigs divvy by the number of shares.

The earnings are still the same though. 

When earnings remain the same - as in, it's x total earnings per year for the entire company... but the Earnings per share is higher... It's a way of playing with the reported EPS. i.e. showing 'growth' in EPS.

I agree with you that under an ideal scenario where management couldn't find, and couldn't see anything in a foreseeable future, where capital could best be invested... then yes, share buybacks is a reasonable and legitimate way of allocating shareholders capital. BUT...

But seeing that share buyback is really a way of returning capital to shareholders because management couldn't figured how else they could deploy the excess cash better so they're passing it back to us owners to figure it out... And assuming that that's the only legitimate way of a buyback, not tied to management bonuses and options based on improved EPS (and hence improved share price)...

Then we, as owner, got to ask... why are we hiring the management and then do their job for them. i.e. why are we paying people who couldn't do proper investment in the business that they'd rather give us back the cash. And unless there's WWIII or everything of value is done being invented or produced, able management ought to keep the cash and invest it.

Yes, there are exception... it depends on the size and scale of the buyback etc. 

Anyway, I don't mind the buyback on an individual level so much as it increases the shareprice but I'd rather it be invested in some real business. That and to buy out other fellow shareholders knowing that they're selling out on the cheap... Aren't we supposed to be all for one and one for all? 

---------------

Buybacks _without _borrowing reduces equity further than _with_ borrowing. 

Major components of Equity are Contributed Eq., and Retained Earnings.

If the company uses its earnings for the year to buy back shares, it has less earnings to put towards that "retained earnings" column... and since it buy back the shares, it reduces the Contributed Equity. 

Pretty sure I got that right


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## Value Collector (2 March 2018)

luutzu said:


> I know, the EPS is genuine in terms of maths where you get the Earnigs divvy by the number of shares.
> 
> The earnings are still the same though.
> 
> ...




What is the difference between company A buying shares in company B and hence increasing its eps by 5%, and company A buying shares in company A and increasing its eps by 5%.

You hirer management to run the company, and if they run the company well they will produce excess cash, now I would much rather them do the unimaginative share buyback in a their own company which we know inside out and is producing the excess cash, than to go and be a maverick and do some silly deal.

I also don’t mind companies replacing equity will debt if they can source the long term debt cheaply.

If for example Disney could borrow $150 Billion at 1% using 100 year bonds, and they used that to buy out all the other share holders except me.

The interest would be $1.5 Billion, and that would leave $8 Billion in profits for me on a share holding that was only worth $100k prior to the massive buy back.

I could pay myself $4 Billion in dividends a year, and use the other $4 Billion to pay of the loan over 30 years or so.

So I would get a 4,000,000 % dividend yield, while also owing the company with 100% equity in 30years.

Now if I am happy for a large scale buy back, I should be ok with a smaller one.


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## luutzu (2 March 2018)

Value Collector said:


> What is the difference between company A buying shares in company B and hence increasing its eps by 5%, and company A buying shares in company A and increasing its eps by 5%.
> 
> You hirer management to run the company, and if they run the company well they will produce excess cash, now I would much rather them do the unimaginative share buyback in a their own company which we know inside out and is producing the excess cash, than to go and be a maverick and do some silly deal.
> 
> ...




Yea, but that's why you're a capitalist and I'm a commie 

And where do you get 1% on interest for 100 years?

There's no black and white on share buybacks, as there aren't black and white in much of anything. It all depends and whether a decision is "good" or not depends on its long term impact. 

If Company A can get the same EPS buying either its own stock or a share in another, it's better to buy another (all else being equal) because it diversifies the empire and you'd expect management to underpay, make worst case scenario etc. in their valuation to get that 5% increase. 

That and it's better, somewhat, that the other guy's shareholders pay for their management mistake rather than your own shareholder getting screwed. That's not the Disney Way.


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## Value Collector (2 March 2018)

luutzu said:


> 1, And where do you get 1% on interest for 100 years?
> 
> 2, There's no black and white on share buybacks, as there aren't black and white in much of anything. It all depends and whether a decision is "good" or not depends on its long term impact.
> 
> ...




1, just an example, but when you can get low interest rates of 2 -3% for 10+ years as you have been able to recently, you can see why Buy backs are good for share holders.

2, All that really matters is the quality of the company and the price. if it's a fair value for the stock and the interest rate is lower than the earnings yield, it makes sense.

3, Buy backs can be part of taking over other businesses, When Disney bought Pixar, Lucas film and marvel the owners wanted a portion of the payment in Disney shares, Disney Obliged and then instigated a share buy back to reduce the number of shares, effectively turning the deal back into a cash deal, they are doing the same with the current 2oth century Fox deal, Murdoch wants shares, Disney commits to buying back $25 Billion of stock before and after the deal.

4, Share market history is littered with deals where managements messed up on acquisitions and destroyed share holder value, in those cases they would be better to have just bought stock, look at BHP's entry into US oil shale, they flushed billions down the toilet.


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## luutzu (2 March 2018)

Value Collector said:


> 1, just an example, but when you can get low interest rates of 2 -3% for 10+ years as you have been able to recently, you can see why Buy backs are good for share holders.
> 
> 2, All that really matters is the quality of the company and the price. if it's a fair value for the stock and the interest rate is lower than the earnings yield, it makes sense.
> 
> ...




Wait, if Disney issued shares to Lucas and Steve Jobs as part of the price for their companies... then bought back, say the equivalent number of shares they just issued... That's not really good for the current owners who sells but are very good for the new owners. Right?

I mean, say Murdoch is going to be paid cash and 5% of the new Disney. Then Disney uses its cash/debt to buy out other shareholders (who aren't Murdoch, 'cause he ain't selling)... So not only are the current shareholders just had their ownership diluted, the new Fox in the hen house just got more real estate.

But yea, I thought I agreed with you that under certain circumstances a buyback makes perfect sense... under other situation it's just market manipulation and ensuring that bonus is in the bank.


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## Value Collector (2 March 2018)

luutzu said:


> Wait, if Disney issued shares to Lucas and Steve Jobs as part of the price for their companies... then bought back, say the equivalent number of shares they just issued... That's not really good for the current owners who sells but are very good for the new owners. Right?




why? how is it any different for the shareholders selling out, if the company is in the market buying up its own shares it would be helping the shareholders exit at a better price than they would otherwise get.

The sellers were probably going to sell anyway, Millions of shares are traded daily.




> I mean, say Murdoch is going to be paid cash and 5% of the new Disney. Then Disney uses its cash/debt to buy out other shareholders (who aren't Murdoch, 'cause he ain't selling)... So not only are the current shareholders just had their ownership diluted, the new Fox in the hen house just got more real estate.




No, you are missing the point.

When Fox and Disney join, the company will be much bigger, Yes I will temporarily own a smaller piece of Disney's assets, but I am replacing that with some of fox's assets, but once the share buybacks are complete, I will own the same percentage of Disney assets as before, Plus a chunk of 20th century fox.


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## luutzu (2 March 2018)

Value Collector said:


> why? how is it any different for the shareholders selling out, if the company is in the market buying up its own shares it would be helping the shareholders exit at a better price than they would otherwise get.
> 
> The sellers were probably going to sell anyway, Millions of shares are traded daily.
> 
> ...





Yes, true and fair enough. 

But aren't management supposed to look after all shareholders' interests. So in a way, asking the current owners to sell their ownership at a "higher than the current market" price... but doing so knowing that the company is getting a bargain... isn't that deceiving shareholders who sells? 

I know they're all adults and they may, or may not, have better opportunities out there... or are just day traders anyway.


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## Value Collector (2 March 2018)

luutzu said:


> But aren't management supposed to look after all shareholders' interests. So in a way, asking the current owners to sell their ownership at a "higher than the current market" price... but doing so knowing that the company is getting a bargain... isn't that deceiving shareholders who sells?




Shareholders only sell if they want to, and the buy back will help them get a better price than they other wise would.


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## luutzu (2 March 2018)

Value Collector said:


> Shareholders only sell if they want to, and the buy back will help them get a better price than they other wise would.




That's what the presentation slides says.


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## Value Collector (2 March 2018)

luutzu said:


> That's what the presentation slides says.



can you describe what sort of share holder you are worried about and how they would be negatively affected?

no body is asking share holders to sell, the buy backs I mentioned are all on market


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## luutzu (2 March 2018)

Value Collector said:


> can you describe what sort of share holder you are worried about and how they would be negatively affected?
> 
> no body is asking share holders to sell, the buy backs I mentioned are all on market




You do realise that I kinda agreed with you right? But since we're bored and want to nitpick, I got a few issues with buybacks.

First... in that Disney/Fox example where they offered Murdoch shares of Disney then, separately, also buy back some $20B of Disney stock, as you said.

If you think about it, that's like giving Murdoch the pro-rata share of that extra $20B in ownership of Disney.

So that's not good for the existing Disney shareholder who, for some reason, want to sell or buy  - depends on whether the offer price was fair or high. 

Let say that the offer was fairvalue for the Fox assets. Murdoch got his fair price and some, say, 5% of the new Disney/Fox.  

The $20B buyback would, using existing shareholder cash, would reduce the stocks and increase Murdoch's holdings. So he's getting to have his cake and eat it too. 


But... you're saying, those shareholders who select to sell... that's their decision, the buyback would actually increase the market price and they select to sell so it's better for them otherwise. 

IF the buyback is done at a "fair" (ie. cheap) price... and it better be else management is making a mistake at existing shareholders' expense (all probably to justify their bonuses)... So if buybacks are done at fair/cheap value, then those shareholders who sell out are selling at or below their holding's fair value. 

I mean, management can't overpay... and if they underpay, then those shareholders are losing out. Right?

This could, could possibly, lead to the board/management/large shareholders manipulating the market... or scheme somehow (that's legal) to drive the share price down... or at least to keep the good news well hidden but the bad news more prevalent. 

This would keep the market unimpress, the share price low for a while... then they offer to buy back from long suffering shareholders who ought to know better. 

Not saying management always do that, but it's possible. 

So while share buyback do have their merits, it all depends. 

Most clear though is that under the best scenario where management is able and honest and are buying an asset that is undervalued... then their fellow/former shareholders are necessarily losing out and being taken advantaged of. 


It also depends on the type of business and the company's financial situation too. I mean, unless the company have so much cash they can stack it sky high and still have left over to not know what to do with, then a buyback is sensible.


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## Country Lad (2 March 2018)

I am currently on a mission to ignore numerous threads in which I have no interest.  If this doesn't stop simply being an argument between 2 argumentative people it will go on the ignore list which would be a pity because it was an interesting thread until the nonsense started.
Take it somewhere else like PMs


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## luutzu (2 March 2018)

Country Lad said:


> I am currently on a mission to ignore numerous threads in which I have no interest.  If this doesn't stop simply being an argument between 2 argumentative people it will go on the ignore list which would be a pity because it was an interesting thread until the nonsense started.
> Take it somewhere else like PMs




You can choose to ignore (annoying) individuals, don't have to ignore the thread.


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## Value Collector (2 March 2018)

luutzu said:


> The $20B buyback would, using existing shareholder cash, would reduce the stocks and increase Murdoch's holdings. So he's getting to have his cake and eat it too.
> 
> 
> .




you completely lost me on the first half of the post, I have no idea what you are talking about.






> I mean, management can't overpay... and if they underpay, then those shareholders are losing out. Right?




no, they aren't losing out, because they were going to sell out no matter what, whether the buy back was happening or not, no doubt they enjoy having the extra buy orders rolling in keeping the share price higher than it would be other wise.





> Most clear though is that under the best scenario where management is able and honest and are buying an asset that is undervalued... then their fellow/former shareholders are necessarily losing out and being taken advantaged of.




No, because they would be worse off if the buy back wasn't happening, the buy back helps them get a fairer price than they would if the buy back doesn't exist.

The market price of shares isn't determined by management.




> It also depends on the type of business and the company's financial situation too. I mean, unless the company have so much cash they can stack it sky high and still have left over to not know what to do with, then a buyback is sensible




this is the case with some companies.

Disney for example produces ship loads of cash, it has used this cash to build make plenty of investments, and pays a growing dividend, but it still has cash left over and has room to use some debt on its balance sheet so it is a good idea to buy back shares, and it buys between $6Billion and $10Billion per year.


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## luutzu (2 March 2018)

Value Collector said:


> [[The $20B buyback would, using existing shareholder cash, would reduce the stocks and increase Murdoch's holdings. So he's getting to have his cake and eat it too.]]
> 
> you completely lost me on the first half of the post, I have no idea what you are talking about.




I don't know the particulars of the two companies or the deal, but the deal as you described goes something like this (note, exaggerate certain figures to make the point):

Say Disney is fairly valued at $150B and Rupert's Fox is fair at $50B. 

Disney offered to pay Rupert for his fox at $50B. $40B in cash, $10B in Disney stocks.

So the Disney+Fox company is now worth $200B with Rupert owning 10/200 or 5% of the company (and took $40B in cash home, away from Disney).

Disney had also announced a share buyback of, say $20B. This is 10% of the company's stock. 

Disney had 100 shares outstanding. Of which Rupert own 5 shares.

Disney bought back 10 shares from other holders, total stock outstanding is now 90, of which Rupert still own 5. 

5/90 = 5.56%. Rupert just had his 5% ownership jumped to 5.56%, or gained 10% extra. 

So the original price of $50B for Fox was in fact $40B cash + $10B stock + $1B extra. 


But you're saying...

The stock buyback is post-Fox so it's also Murdoch's cash that bought it back. 

Not really... because the buyback was announced before he became shareholder; and it is going to be paid with cash that Disney accumulated/borrowed/earned... not with his cash.


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## luutzu (2 March 2018)

Value Collector said:


> ....
> no, they aren't losing out, because they were going to sell out no matter what, whether the buy back was happening or not, no doubt they enjoy having the extra buy orders rolling in keeping the share price higher than it would be other wise.
> 
> No, because they would be worse off if the buy back wasn't happening, the buy back helps them get a fairer price than they would if the buy back doesn't exist.



That's only true if we assume that in all sales, the seller would sell out anyway. 
It could also be that the buyback announcement increase the sales price a bit, enticing owners who would otherwise not sell to get out... and gotten out at what, assuming management does know what it's doing, getting out at a lower value than it ought to be.

There are examples of stock buyback that I know of where I don't think management is buying it back because it's cheap. So in that case it might help the sellers. 

So yea, can go either way... depends.



Value Collector said:


> The market price of shares isn't determined by management.




Can be massaged by management, their forecasts, speeches and pessimism/optimism. 



Value Collector said:


> this is the case with some companies.
> 
> Disney for example produces ship loads of cash, it has used this cash to build make plenty of investments, and pays a growing dividend, but it still has cash left over and has room to use some debt on its balance sheet so it is a good idea to buy back shares, and it buys between $6Billion and $10Billion per year.




I agree with you.


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## Value Collector (3 March 2018)

luutzu said:


> I don't know the particulars of the two companies or the deal, but the deal as you described goes something like this (note, exaggerate certain figures to make the point):
> 
> Say Disney is fairly valued at $150B and Rupert's Fox is fair at $50B.
> 
> ...




All shareholders that don’t sell will have their share of the assets increase,

Any way, not really interested in nit picking


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## Uncle Festivus (9 March 2018)

Yikes, what a great effort by luutzi with the investing 101! Far more patience than I have.

So the problem with share buybacks with debt can be readily observed - it really only works if rates are low and there is economic growth. When either or both of those changes then the numbers won't add up favourably. 
Rates are rising in the US in order to attract money to fund their deficit(s). Ust10 at 3% is now better than the risky return from a lot of listed companies. Throw in a recession, as will likely start imminently, as in April GDP figures disappointing, then the debt to profit ratio will blow out.
This is simple maths, distorted by CBs, to give the appearance of normality.
There looks to be a cap on the ust10 at 2.9 for now but when it breaks higher we will get the real correction. The Trump trade is dead, the bulls just don't know it yet. Bot ramps rule.
Nice wedge forming in equities now though, just in time for April.


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## Uncle Festivus (20 March 2019)

Value Collector said:


> Because Boeing has been delivering a knockout punch with its 787 and 737, they have a super strong order book, and look like the clear winner for the next 10 years or so.




Boeing certainly has been delivered a knock out punch for sure.
Order book cancellations.
Class action lawsuits.
Lost.


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## Value Collector (20 March 2019)

Uncle Festivus said:


> Boeing certainly has been delivered a knock out punch for sure.
> Order book cancellations.
> Class action lawsuits.
> Lost.




Mate, the share price is higher now than it was when I made that comment, so I wouldn’t call it a knock out punch.

Their order book is huge, what is happening now is a relatively minor glitch in the scheme of things, they are the strongest member of a global duopoly, their dividend stream isn’t going anywhere.


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