Allora cosa manca questa sera.....
postato commento sui mercati tratti dalle news, effettuato piccolo commento di chiusura e operativo, postata analisi tecnica altrui...
ah manca un bel commento macro
Stock Buyback Smoke and Mirrors
There are some frauds so well conducted that it would be stupidity not to be deceived by them. -Charles Caleb Colton (Lacon, 1825)
Near the top of the Pig Men perps in this cycle are stock buybacks. There will be an estimated $500 billion in corporate cash spent on share purchases in 2006. Intellectually, I don't have a problem with buybacks in certain instances, such as when a stock price is demonstrably undervalued, and when conflicts of interest, i.e: stock options schemes, are not involved. But the practice as undertaken today has been massively expanded to involve a large scale stock manipulation scheme, primarily to benefit executive option holders. In effect these are anti-dilution ramps to offset new share issuance from option holders/insiders.
The criticism should be straightforward, XYZ issues 10,000,000 shares from option exercises from insiders at $10, and receives $100 million. However, to offset the issuance of these cheap shares, XYZ buys 10,000,000 "in the open market" at $25, for $250 million. Pure and simple, the added use of the corporation's/shareholder's cash in this transaction should be treated as a "deferred compensation expense." As such, investors should recast the cash flow statement by moving the components of option exercise and repurchase from the section for Cash Flows From Financing Activities (CFFF) back up to Cash Flows From Operations (CFFO). This concept was a centerpiece of the obviously ignored Mulford and Comiskey classic, Creative Cash Flow Reporting:Uncovering Sustainable Financial Performance.
Already in effect you say? Think again from Business Week:
The added expense will probably reduce earnings in the aggregate by about 3% for companies in the Standard & Poor's 500-stock index, accounting analyst David Zion of Credit Suisse Group (CSR ) estimated late last year using 2004 data, the most recent available. But the impact could be less than that because many companies in 2005 cut back on options grants or changed terms and estimates of their value to reduce the amount they'll have to report.
The clarity the change is supposed to bring has been muddied. At least 846 companies papered over their stock option costs before coming under the rule by vesting their options grants early, according to a report by accounting analyst Jack Ciesielski in The Analyst's Accounting Observer. The move effectively put into the past expenses that would otherwise be counted over the next few years. It will take roughly three years before that ploy plays out, says David Bianco, chief U.S. equity strategist at UBS Investment Research (UBS ). Until then, earnings for those companies will look better than those of competitors that didn't use the gimmick, all else being equal.
Of course other now forgotten observers of another time, such as Benjamin Graham, essentially admonished share repurchases in general as manipulations. John Schroy wrote an important essay entitled The Great Misleading that gives nine fallacies about buybacks, and also mentions certain ethical (what's that?) issues. For the impatient speed readers amongst you I offer one, "money that belongs to all investors goes to only a few." Schroy also offers the history background on the change in the SEC rules, that allowed Pig Men to run wild with this and other scams, following their post 911 coup de tat in Amerika's version of the Reichstag fire.
After September 11, 2001, the SEC loosened even these lax requirements, with the intent of encouraging issuers to manipulate prices upwards following the terrorist attack on America.
Of course in today's "any ethic, no matter how poor is OK, as long as stock prices go up environment", this scam has hit new undreamed of levels, resulting in the whole option backdating issue. The thinking here apparently is why not just make up whatever price we choose on the options, and REALLY GET GREEDY? CNN Money .com recently wrote a good essay with the preface, "the debate over it's nuances misses the point". Only in Alice in Wonderland (or Hell), would the ethics of this be considered "a debate". Incidentially, here's what CEO's really think about business conditions now.
Finally, Barry Ritholtz pulls it all together in terms of what are real operational earnings, that is if ethical Mulford-Comiskey or Ben Graham accounting standards were used. Also be sure to link through to this backup comment on the topic, where he offers this key takeaway from David Rosenberg:
However, as the indefatigable David Rosenberg of Merrill Lynch points out, such a splendid performance reflects not so much any inordinate growth of revenues as the impact of an unprecedented mass of buybacks -- $456 billion worth of stock repurchases that TrimTabs Investment Research estimated took place last year. Operating earnings in dollar terms -- as against per-share net -- actually were up only 7.8% over the comparable year-earlier total. Which, David notes, was the narrowest gain in three years.
This predictable pattern, of sloppy stock buybacks, has been married with unlimited foreign central bank Old Maid Cards purchases, and a huge Yen carry trade to create the mysterious, wash, rinse, repeat invisible hand that has squeezed market volatility down to the lowest ever. It has also created distorted securities prices, and the tiny risk premiums seen today.
In effect, this is a tawdry manipulation scheme of unprecedented proportions. Clearly, the prop trading desks/Pig Men encourage it, and feed at this trough as well, given many companies aren't even careful or selective about their "buybacks". In fact, they telegraph it big time, as the goal is inflated prices, not bargain buying. The now familiar ramps seen at certain times of the day, such as 20 minutes after the open, and an hour and half before the close, is the footprint of this gaming. Just about every Risklove and day trader is quite familiar with it, seeing it a "free money".
