Three months ago I was busy shouting about the buybacks. It's the Buybacks Stupid! In my February piece I noted how corporate buybacks were helping to fuel a rally to record stock prices. Companies of all shapes and sizes are buying back their own stock thereby reducing outstanding shares. But it's not just the buybacks!
Mergers and Acquisitions are on a record pace in May. And judging by current action and rumors - June could be setting up to be just as explosive. We've had quite a few announced and rumored deals this week alone. Today $HUM, yesterday $ALTR, the prior day $BRCM. It's been an incredibly acquisitive week, to cap a record month.
May is on track to set the record for Mergers and Acquisitions in the U.S. http://www.marketwatch.com/story/may-on-track-to-set-record-for-us-ma-activity-2015-05-29
Let's think about this for a second:
- We have artificially low interest rates forcing investors into risky assets
- We have corporations utilizing these same low interest rates to buy back stock and enrich shareholders via ever increasing dividend payouts
- We have corporations and investors using this same cheap money to embark upon mergers and acquisitions.
Which is all leading to less tradeable shares for investors seeking to invest, which means higher prices. It's the inverted self-fulfilling prophecy of the financial crisis in 2008/2009 when selling beget more selling. In this case more buying is creating an environment where there is less to sell.
Record breaking M&A activity will only exasperate the ever decreasing supply of tradeable stock in the market.
What does this mean for a stock market that sits right under record prices?
You Aint Seen Nothing Yet
I met a devil woman
She took my heart away
She said, I've had it comin' to me
But I wanted it that way
I think that any love is good lovin'
So I took what I could get, mmh
Oooh, oooh she looked at me with big brown eyes
And said,
You ain't seen nothin' yet
B-b-b-baby, you just ain't seen n-n-nothin' yet
Here's something that you never gonna forget
B-b-b-baby, you just ain't seen n-n-nothin' yet