Loading ...Rick’s Pick for Thursday
Meaningless Data Stokes the Insanity
With Q1 earnings season behind us, the thoughtful observer can only shake his head over Wall Street’s feverish obsession with meaningless financial data. It’s obvious that few investors even remotely care about the quality of corporate earnings any longer, only whether those earnings come in a few pennies higher or lower than predicted. But that doesn’t begin to capture the insanity of the game, for stocks are being pushed to ridiculous heights for reasons unrelated to corporate performance. Share buybacks are a powerful contributor to the illusion of wealth. Companies with billions in surplus cash borrow vast additional sums for practically nothing in order to buy back their own shares. The effect is to drive earnings multiples higher without producing any economic growth — other than enriching insiders who hold stock options and receive performance bonuses. In my most recent conversation with Howe Street’s Jim Goddard, I discuss this and other topics, including the potentially deflationary impact of 3D printers.