It’s no secret that one of the main things propping up the US stock market has been corporations’ willingness to buy back their own shares with borrowed money. The following chart illustrates the rather amazing correlation between share repurchases and share prices.

This was obviously a short-lived strategy, one that would end when companies got so leveraged that borrowing more started to look pathological rather than wise. And that time may have come:

U.S. Buyback Announcements Tumble to a 2012 Low

But wait, there’s more. It seems that corporate insiders understand the upward pressure they’ve exerted with all their leveraged buying – and that without it many stocks are sitting on some serious air pockets. So in the best tradition of the 1%, they’re sticking their remaining shareholders with that eventual bill by dumping their own shares at a record pace:

Corporate insider selling surges as market hits record

A crucial sentence from the first article: “Equity buybacks last week totaled just $2.6 billion, while record highs in U.S. stocks triggered an increase in new equity offerings.” So not only are companies buying fewer shares, they, along with their insiders, are starting to sell.

The result of this change in the supply/demand calculus should, other things being equal, be lower share prices. Which would vindicate the lengthening list of heavy hitters (Gross, Soros, Icahn) who have gone bearish lately.

By John Rubino

dollarcollapse.com

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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