The stock market has been on an incredible run, gaining $4 Trillion just since the election.

So stocks are rising because every Tom, Dick, and Harry has been buying equities, right?

Wrong.



As Credit Suisse's strategist Andrew Garthwaite writes, "one of the major features of the US equity market since the low in 2009 is that the US corporate sector has bought 18% of market cap, while institutions have sold 7% of market cap."



The stunning post-2008 stock bull market has been accomplished almost entirely through corporate buybacks.



In November 2016, Goldman Sachs’ chief equity strategist David Kostin estimated that, in 2017, S&P 500 companies will spend $780 billion on buybacks — a new record.

That’s crazy.

For most of the 20th century, stock buybacks were deemed illegal because they were thought to be a form of stock market manipulation.

By several measurements, stocks have gotten extremely expensive.



So the fact that stocks are now trading at a P/S ratio that matches the Tech Bubble (the single largest stock bubble in history) tells us that we’re truly trading at astronomical levels: levels associated with staggering levels of excess.



OK. What business is it of yours if corporations are using more and more of their profits to boost stock price rather than invest in the long-term health of their companies? That's freedom, and such.

Except that isn't what's going on.



The leverage of the US nonfinancial sector has reached unprecedented heights according to the US’s never before seen ratio of nonfinancial-sector debt to GDP. Nonfinancial-sector debt includes the credit obligations of households, nonfinancial businesses, state and local governments, and the US government. Though the ratio of US nonfinancial-sector debt to GDP’s moving yearlong average dipped slightly from Q4-2016’s record 255% to Q1-2017’s 253%, the latter was considerably higher than year-end 2007’s 230% that immediately preceded the Great Recession.



Record amounts of borrowing + Record amounts of buybacks = Record amounts of borrowing to buy their own stocks.

What's more, outside of the top couple dozen companies, cash on-hand has never been more rare.



Well, it's a free market and blah, blah, blah, and who are you to say what is the best way to spend their money, you commie, etc.

Right. Maybe, just maybe, corporate executive America is sick.



As corporate America engages in an unprecedented buyback binge, soaring CEO pay tied to short-term performance measures like EPS is prompting criticism that executives are using stock repurchases to enrich themselves at the expense of long-term corporate health, capital investment and employment.

...A Reuters analysis of 3,300 non-financial companies found that together, buybacks and dividends have surpassed total capital expenditures and are more than double research and development spending.

Lately, the sheer volume of buybacks has prompted complaints among academics, politicians and investors that massive stock repurchases are stifling innovation and hurting U.S. competitiveness -- and contributing to widening income inequality by rewarding executives with ever higher pay, often divorced from a company’s underlying performance.

It is long-past time that people start using the terms "mismanagement" and "fraud" to describe corporate America. The system isn't going to fix itself.