Share Buybacks Mask No Growth Environment

Written By Victoria Sivrais, Partner

May 23, 2016

What’s the big deal about Brexit from a US investor perspective? Probably not much, if FactSet’s analysis on revenue exposure is correct. No sector has more than 6.5% of its revenues exposed to the UK. US total exports to the UK were only $56 billion in 2015 versus $218 billion to the rest of the EU. British goods should become cheaper in the US – so expect good deals on cars, manufactured products and spirits. The deeper question is whether Brexit signals the beginning of the end of the EU, at least in its current form. Will the trends toward isolationism, including here in the US, introduce further uncertainty in global business?

Continuing pressure on buybacks – New York Times’ Jeff Sommer reports on new data from the Federal Reserve, which seems to show that companies have been making up for a gap in demand from equity investors. In the first quarter of 2016, Federal Reserve data showed net outflows of from equity mutual funds. Corporate purchases of the companies’ own shares, however, provided a net inflow of cash to cushion stock prices. The last 12-month buyback record was in December 2007 – days prior to one of the worst stock market declines in recent history.

What’s the big deal about 350 microseconds? IEX won approval from the SEC to open a new stock exchange, which will slow down trading, ostensibly to make the US markets more fair. Experts doubt IEX will account for significant levels of trading, but see the real threat of other exchanges following their lead and offering something similar. Will slower trading markets lead to less volatility and less dark market trading? Major hedge funds like Citadel seem to think so – with Ken Griffith doing everything short of starting a hunger strike in an attempt to stop this SEC decision, but to no avail.

Celtics third draft pick, Cal freshman Jaylen Brown. did a surprising thing –picking the Celtics, but doing it without an agent. Instead, the athletic small forward, considered one of the most intelligent players in this year’s draft, is relying on a group of advisers including Hall of Famer Isiah Thomas to guide him. With the value of rookie deals determined by NBA Draft order, Brown stands to save about $300,000 in commissions an agent would charge over a four-year deal. Sounds pretty smart to us.

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