One thing that has been pushing the stock markets up is earnings per share. They have been up, so prices have gone up. The earnings have made things look good over the last few years, but there is a catch. It looks as if the earnings per share increase has not been the result of higher profits or sales. It's the result of companies buying back their own stocks. Now that would not be a big deal if it was only a few companies, but it turns out, it's a lot of them. Over 200 companies in the S&P 500 have been buying back their stock!
So wait a minute, how do prices go up in the stock markets? First, companies post higher earnings and then people buy the corresponding stocks which pushes prices higher. What if companies who are buying their own shares artificially boost earnings per share and also buy up their own stock, both of which push prices higher? Is that not manipulation? Does that not border on fraud? What if a good portion of the huge rally we have had has been driven by these buybacks? Something does not smell right here. Hey, that would partially explain why stocks have done so well and the rest of the economy has not. If that's the case, then we are being set up for a huge fall if things go south (which I think they will). Things are getting very interesting!
What do you think?
http://abcnews.go.com/Business/wireStory/investors-fooled-buybacks-22864822
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