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Good morning.
All eyes and ears will be on Fed Chief Jerome Powell as the FOMC meeting wraps up today. There’s a zero-point-zero percent risk of any change to its policy of rock-bottom interest rates and gorging on debt. And so, inflation will be the focus.
In company news, Alphabet shares are soaring in the pre-market this morning after the tech giant delivered killer numbers after the bell yesterday. It’s also spending a record sum on buybacks. It’s hardly alone, as I detail in today’s essay.
But first, let’s see what’s moving markets.
Markets update
Asia
- The major Asia indexes are modestly higher in afternoon trading with Japan’s Nikkei up 0.2%.
- Shares in Nomura are up for a second straight day. That’s after the Japanese banking giant on Tuesday reported a $2.3 billion hit from the Archegos meltdown. Here’s the latest rundown of which big banks in Asia, Europe and the U.S. have lost out from Bill Hwang’s overly-leveraged and wayward trades.
- The Lee clan, Samsung’s founding family, face the mother of all estate taxes. To pay off the $10.8 billion tax bill, the family intends to sell its collection of rare artworks, including Picassos and Dalis.
Europe
- The European bourses were a touch higher out of the gates, with the Stoxx Europe 600 up 0.1% at the open, before slipping. (Note: a big fat merci to the Bull Sheet readers who emailed me yesterday several clever “flat” metaphor suggestions that I can sneak into future newsletters. Stay tuned.)
- Shares in Deutsche Bank were up a whopping 6% in the opening minutes of trading. The German lender reported its best quarter since 2014, and raised its outlook. The bank appears to have dodged any significant losses from the Archegos Capital Management collapse. Europe’s banking stocks are solidly in the green this morning.
- Today I learned: unused fabric is the bane of the fashion world, costing the industry $120 billion per year, according to one estimate. On that note, LVMH is launching an online marketplace to sell its “deadstock” fabrics that could come from any one of its upscale brands, including Louis Vuitton, Christian Dior, Fendi, and Givenchy.
U.S.
- U.S. futures are mixed this morning. That’s after a lackluster Tuesday.
- Shares in Google parent Alphabet are up more than 4% in pre-market trading after the tech giant posted monster results after the bell yesterday, and announced it would buy back $50 billion worth of shares.
- Microsoft shares, however, are going in the opposite direction in the pre-market. The software behemoth topped the consensus sales estimate, but came in short of the most bullish forecasts. Tough crowd.
Elsewhere
- Gold is down, trading around $1,770/ounce.
- The dollar is up.
- Crude is up a touch with Brent trading above $66/barrel.
- Bitcoin is down 1.2% in the past 24 hours, trading above $54,000.
***
Buyers, Inc.
After an off-year in 2020, buybacks are back. With a vengeance.
Alphabet yesterday evening announced it will earmark a mammoth $50 billion to snatch up more shares. For the search giant, that’s significant. The last time it bought back shares, it set aside $28 billion to do so.
The practice of using earnings to buy back shares has long been a hot-button topic among Wall Street watchers. On the face of it, the practice seems like a good deal for the investor. If the company buys up its own stock, then the shares you hold onto should be worth more. That’s how scarcity works in a free market.
But once again the practice is raising alarm bells among good-governance watchers who’d prefer to see companies reinvest their cash for the long-term, in R&D or operations or employees rather than in buying up shares. One major criticism: stocks are expensive. Really expensive. Is buying historically pricy shares the best use of corporate cash?
As my colleague Shawn Tully wrote in February, 2020: “while buybacks are widely lauded as the market’s salvation, Corporate America is choosing to repurchase its shares at extremely high prices, so that each buck spent delivers a relatively puny bang.”
Guess what? Companies are getting an even punier bang today.
That argument is hardly dissuading corporate chiefs.
On cue, Sony is buying back billions even as its bottom line performance disappoints. SoftBank, too, is buying back shares despite warnings it will have the opposite effect, and torpedo the rally.
BofA Securities reported that last week marked the biggest surge in buybacks, continuing a trend that dates back to last quarter. In fact, corporates are by far the biggest net-buyer of stocks at the moment, as this BofA chart shows:
And Morgan Stanley, in a research note today, says “European buybacks look set to rise sharply.” The Morgan Stanley team argues that it makes more sense for European companies to plow money into buybacks than, say, dividends as, historically, such actions have delivered better total returns to shareholders. Incidentally, they say, the same argument doesn’t hold true for U.S. companies.
Whether you’re a fan of buybacks or not, it doesn’t matter. After a significant pause, they’re coming back.
***
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.
Today's reads
Turn on, tune in, drop out. I won't bore you with the plumbing of newsletter distribution, but you should know the engine we use here for BullSheet is a startup called Iterable. Today's news is that the Iterable CEO got the boot for microdosing LSD on the job. Psychedelics are gaining huge acceptance in some parts of Silicon Valley, and are spurring a new investment boom. You should check out Jeffrey O'Brien's amazing 2020 feature on the topic.
Apple curtain-raiser. The $2.2 trillion stock, Apple, reports its latest quarterly results after the bell today, with an analyst call set for 5 p.m. EDT. Analysts are expecting strong top-line sales to match its surging share price of late. Fortune's Aaron Pressman breaks down what investors should be looking out for later today.
Pop! Corn. Commodity prices have been in 🚀 mode for months. Corn futures are no exception. Prices hit a 13-year high yesterday as supply constraints clash with rising seasonal demand. "A corn shortage," Fortune's Chris Morris reports, "could hit the housing market nearly as much as the surge in lumber prices has, as it’s used in industrial products including wallboard, insulation, paints, linoleum, wallpaper, and adhesives."
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Market candy
Quote of the day
Elon [Musk] and I were looking for a place to store cash that wasn't being immediately used, trying to get some level of return on this, but also preserve liquidity.
That's Tesla CFO Zach Kirkhorn on an analyst call this week explaining why the EV-maker made the unusual move to buy billions in bitcoin last quarter. What was just as surprising is that Musk and Kirkhorn unloaded 10% of their bitcoin stake, a move that raised $272 million, a figure that "dwarfs what Tesla earned in its bedrock business of selling cars and batteries," Fortune's Shawn Tully calculates. Tully's analysis of TSLA's BTC dealigns is a must-read for anybody who wants to understand what cryptocurrencies do to a company's books from quarter to quarter.
