Buybacks and Market Tops

I don't about yourself or
What you want to be
When we gamble with our time
We choose our destiny
--Molly Hatchet

Interesting analysis on share buybacks in John Hussman's always insightful weekly letter. The analysis stems from his argument that the only folks who will be able to safely exit markets at these prices are those investors whose shares are removed via share buybacks. Remaining shareholders will be subject to the escalating musical chairs Ponzi.

Currently, share buybacks are approaching an annual rate of 4% of stock market capitalization which is near the upper bound of historical buyback data. Those not taken out by buybacks face the Greater Fool.

Hussman notes that heaviest share buyback activity is typically associated with market peaks--just like emotionally-led share buying intensity in general. To fund these corporate buying frenzies, however, managers need to borrow--since corporate cash flows are insufficient to cover other activities such as capital expenditures and dividend payouts in addition to share repurchases.

In other words, corporations are going on margin to buy stocks at their highs. As Dr J observes: "the history of corporate buybacks is a chronicle of corporations buying stock at market tops, and retreating from buybacks at the very points that stocks are most reasonably valued."

Where does current corporate buyback behavior suggest we are in this cycle?

position in SPX