December 2022
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December 8, 2022

Financials Matter

"It's Not Just About Finance"

When the Cocaine High Wears Off

Most “Coke-heads” will tell you that after crashing from a high, they’ll crave more of what got them high in the first place.

The same can be said about the drug fuel that’s been juicing the markets since the panic of 2008.

The markets drug of preference?

Cheap money.

But just like any drug addiction, that which appears cheap ends up being very expensive AND destructive in the long run.

The cheap and abundant money supply that’s been feeding the markets has been enhanced by Trump’s tax reform plan.

It’s allowing corporations to repatriate roughly $3.5 TRILLION in overseas money.

That’s the good and bad news.

The good side being that companies can add more jobs, rebuild our infrastructure, and enhance productivity.

The bad news results from these same companies using the cash to buy back their own stock.  (Estimates range from $1.5 to $2.8 Trillion)

Wait!

Aren’t stock buybacks supposed to be good?

In the traditional sense, yes.

However, according to UBS, stock buybacks are up over 83% year-to-date and US corporate Merger and Acquisition (M&A) activities have surged over 130%.

Sounds good so far, right?

What slips under the radar is that these events have accounted for 40% in market performance so far this year.

Put this in context.

For the most part the markets are flat this year.  So, if we didn’t have these buybacks, where would the markets be?

This also adds increased strength to our US dollar which, in turn, is devastating to the world economy.  (Especially Emerging Markets).

So, the $64 Billion question remains:  “What happens when this cocaine money high wears off?”

We explain it to you in our July newsletter…in Plain English.

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