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David's Macro Blog

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Archive for March, 2009

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From the WSJ: If Corporations Don’t Buy Stocks, Who Will?

Share repurchases by components of the Standard & Poor’s 500-stock index fell to lowest level in the fourth quarter of 2008 since the third quarter of 2004, according to S&P, as companies retreated into a hole, preserving cash as the market tanked.

According to the Federal Reserve’s flow of funds data, released quarterly, the biggest buyers of shares in the 2005-2007 period were U.S. corporations, coming at a time when households and mutual funds were net sellers of U.S. equities. The frenzy hit a peak in the third quarter of 2007, according to Standard & Poor’s, when $171.95 billion in repurchases took place – dovetailing neatly with the market’s peak.

So basically corporations were horrible market timers. They bought their own stock during a big multi-year rally in 2005-2007. Then, when their shares where on sale in 2008-2009 they didn’t buy their own shares at a huge discount.

Thinking about this, a true investor really has to be contrarian. In this case preserving cash in 2005-2007 and then spending that cash when equity prices were cheap starting in 2008. Often the “experts” are wrong. In this case, the best evaluator of a business’s value, the very owner/manager, made a poor investment decision and bought their own business at peak pricing.

This is a must-read before you list your house for sale in this market, especially if your area has lots of REOs:

http://www.bubbleinfo.com/2009/03/sellers-get-it-done/

You have to watch this video:
http://www.thedailyshow.com/full-episodes/index.jhtml?episodeId=220533

Jim Cramer and CNBC were in a verbal war with Jon Stewart and The Comedy Central.

Stewart is a comedian and very cynical (that’s his persona at least) but he clearly understands the issues here and asks good questions (sadly better questions than most “real” financial interviewers). His premise is correct. Listen to his logic and line of reasoning.

This is Stewart’s best interview that I have seen.

Funny and scary at the same time…

Video link: http://aclu.org/pizza/images/screen.swf