Another Leg Falls

How many legs do we have propping up the Stock Market? I've lost count. We all know that the Private Equity buyout "leg" is history. The latest one to collapse is the buyback stock craze, which has reduced the supply of stock the last few years. Once again a chart from The Wall Street Journal says it all:



Public companies have been levering up to buy back stock, most of them due to pressure from idiotic hedge fund managers who have apparently never lived through a business cycle. I have this picture in my head of the typical company in a meeting with its bankers to renegotiate its covenants during the next business cycle contraction. The CEO says something like this: "We don't know what happened, our largest shareholder told us this was the ideal capital structure." The bankers just stare back at them, their mouths open, unable to formulate a response to this stupidity.

This is now coming to an end as lenders tighten standards and credit rating agencies actually start doing their jobs. Now many legs does a table need to stay standing?