The news today is that share buybacks could exceed a trillion dollars this year. Get Mike Savage’s opinion on Tesla’s Elon Musk and more in this weekly article. If you’re looking for financial advice, get in touch with a financial consultant in Pocono Summit.
Weekly Article 08-08-2018
I wrote a few weeks ago about the fact that most of the buying of US stocks was being done this year through stock buybacks. Just yesterday it was reported that for the first time ever share buybacks could exceed a trillion dollars this year. (A great reason why only a handful of stocks are responsible for this years gains)
Just when you think you may have seen it all it comes out that Saudia Arabia’s Wealth Fund has bought up to $2 billion worth of Tesla stock. It also appears that Elon Musk- Tesla CEO is threatening to take Tesla private. My opinion here is that he can then mask the fact that it appears the company is in horrible shape financially because it has not produced a profit and is burning through cash like a true dotcom juggernaut. The games being played as we speak are truly extraordinary and it appears to me we are approaching quite a large cliff.
According to David Kostin of Goldman Sachs, this “extra” trillion in purchases should be enough to keep the “market” propped up. It is little wonder why many major banks like Bank of America and others are warning that this market rally has no breadth (not many companies participating) and does not look healthy.
The sad part is that all of this manipulation, money “printing” and the falsification of all prices is right in our faces. There is no trying to hide the fact that all prices are being managed to give a certain illusion- that all is well.
How could “all be well” when there are debts piling up exponentially that couldn’t be paid off when they were a fraction of what they are today 10 years ago?
In addition, I believe the financial condition of many in the real economy continues to deteriorate. There are a lot of stories about students with debt that are unable to find good jobs but a fact that is often overlooked is the increasing insecurity of our senior citizens.
In an article by JT Crowe in Personal Finance it states that people 65 and over are filing bankruptcy at a pace that is 3 times higher than in 1990. In the article it states that people not saving enough and increased medical expenditures are major reasons why many baby boomers are having trouble with debt and living expenses. While these are two major reasons why more stress is being put on personal financial balance sheets the fact that the central banks have kept interest rates next to nothing for 10 years now is also a major reason why our seniors are having a hard time getting by.
Not only are expenditures going through the roof but the ability to get compound interest has been largely absent for nearly a decade in traditional low-risk type of assets. This means that our seniors are having to burn through the assets that they have spent a lifetime amassing because without elevated risk there is no return to be had.
Of course, this course of action by the central banks has led to artificial prices for virtually all assets. It appears to me that anyone who throws in the towel now and basically throws caution to the wind will likely get a lesson about risk in the near future.
Sometimes it is better to sit back and wait for an opportunity instead of taking a risk that appears to outweigh any reward that we might attain particularly at a time like this where there seem to be a number of factors that don’t appear bullish for stocks or bonds at this time.
It appears to me that the precious metals are in the process of forming a major base that could lead to some substantial gains in the near future. The sentiment in this area is at historic lows, the commercial traders have record short positions and there appears to be little interest in this area outside of central banks, major banks and a few hedge funds.
In the past, this type of sentiment and positioning has been a great place to get long from because when the sentiment changes it doesn’t take a lot of institutional money to drive prices far higher because of the size of the market.
Human beings tend to think in linear terms. When an asset is rising they picture it rising as far as the eye can see. When an asset is falling they believe it will continue to fall for as far as they can see. The fact is all assets trade in cycles. Nothing continues up forever and in most cases once an asset hits zero it can’t go any lower. The trick here is to keep a clear head and buy assets that are cheap (many times out of favor at the time) and sell assets that are expensive.
Of course, many traditional measurements of whether an asset is overvalued and undervalued have been rendered useless lately because of central bank “printing” money and the buying of assets which has destroyed traditional price discovery. I always say 2+2= whatever the guy “printing” the money says it is- not the traditional 4.
Does it appear that stocks, bonds and real estate may be overvalued at near all-time highs and buyers starting to get out of these assets? Could it be that gold, silver and other assets may be set up for a large move upward after being beat up the last few years?
Time will tell but I am of the belief that stocks, bonds and real estate are going to have a rough ride going forward particularly if the Fed continues to raise rates. I also believe that gold and silver are poised for major gains and that the large banks, central banks and actual sovereign countries see it coming. This is why they have been quietly (or not so quietly) repatriating gold, selling bonds and buying gold and setting up payment systems outside the US dollar.
Of course, the financial game shows are in the business of entertainment- not real information so to them- it is ALWAYS time to buy. Their sponsors say so!
Mike Savage, ChFC, Financial Advisor
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