After creating $17 trillion dollars and pumping most of it into the financial markets, the central banks collectively tried to pull back in early 2018. It did not work out so well as evidence in the chart below.

So the central bank life support should continue – the free markets must be controlled. But pushing the markets beyond 1929 and 2000 market valuations will require ever-larger interventions.

Some are calling for a melt up. Why?

Because real investors did not participate in most of the last market rally. It was driven by corporations buying back their own stock on the open markets. Which means if retail investors jump back in near market highs as they are known to do, the market could advance to glorious Icarus new highs.

Or not.

My concern is since early 2018 when inflows into the market spike, it has been followed by a price dump as seen in the next chart. The green slashes show the price dumps. The “?” corresponds to when the market partied (green line) but no one showed up (except the brokerage’s buyback desks).

Things are getting quite absurd these days.

Sentimentrader points out wall street is raising its target price for the market at the same time it is lowering earnings estimates. Hmmm?

And I see divergence between the SP500 and the smallest companies in the market which tends to not be a good sign. The SP500 is a stone’s throw from a new high, but the smaller companies in the Russell 2000 are struggling.

A third of the Russell 2000 companies have negative earnings – a third! But conveniently, the PE ratios passed to retail investors don’t include negative earnings in the ‘E” part of the Price-to-Earnings ratio. What a deal.

Within the SP500, the largest 50 companies are carrying the load. This has a lot to due with who can still afford buybacks. And most of the cash-rich profitable companies are in the tech sector and they are pulling away from everyone else – buybacks, buybacks, buybacks.

Did I say buybacks?

It must be serious when Goldman Sachs starts telling the truth.

After spending the last year telling everyone buybacks have no impact on the markets and not gaining any traction, they are now telling everyone ending buybacks will crash the markets.

We knew this.

We also know this is the primary reason the US markets have left the rest of the world behind. Buybacks are mostly illegal outside the US or at least severely frowned upon. A study is out telling us buybacks have accounted for 80% of the market’s gains globally and those gains occurred in the slowest growing economies – they’re talking about the US if you were wondering.

What they did not say, but I will repeat like a broken record, is once buybacks are curtailed, it is all over for this bull market. The market will give back most of its gains since 2007 if not all. Why? Because debt does not go away. And many corporations used debt to buy back their own stocks.

Buybacks used to be illegal, it should still be criminal. But we live in the age of wealth extraction. And if you were along for the ride, then try to get off before the ride it over.

Members: Our Special Report has been updated.

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Categories: Perspectives, TSP Charts