Eating balance sheets to keep a Ponzi-like dream alive

When corporations buying back their own shares have become the only net buyers for stocks, you know that we are very, very late in an epic cycle.  And when that buying has been possible only by borrowing suicidal levels of debt to keep the Ponzi-like dream alive, you know we have a contest of greater fools:  those buying the debt and those buying the shares. The bond buyers are throwing good money after bad in desperation for yield, while the corporations are cannibalizing their balance sheet in order to feed a fleeting illusion of rising share prices.  In the end, both are likely to earn what they deserve:  capital losses.  See:  There’s only one buyer keeping the S&P alive.

Corp buybacks only buyersPrem Watsa of Fairfax Financial laid out similar conclusions in his latest shareholder letter.  The financial-tainers on BNN made note this morning.

Fairfax Financial CEO Prem Watsa laid out a litany of risks in his latest letter to shareholders. From plunging commodity prices, to Canada’s housing market and frantic policymaking in China – he’s telling investors it could all come to a head early this year. Here is a direct video link.

This entry was posted in Main Page. Bookmark the permalink.