Looks like it’s not just the usual bunch of numbskulls who have been buying stocks at these rarefied levels. Turns out that big companies buying back their own shares have been a major source of support for the stock market in recent months. S&P-listed firms bought more than $100 billion of their own stock in the first quarter of 2006, up 22 percent from a year earlier, according to the lead story in yesterday’s Wall Street Journal. To the newspaper’s credit, it gave prominent play, via a sub-headline, to a not-so-bullish implication of all this buying: “Repurchases Aim to Bolster/Shares but They Also Signal/Hesitancy to Invest in Growth.”

To speak of corporate investors’ “hesitancy” is putting it charitably. But then, where else could they conceivably deploy hundreds of billions of dollars in surplus cash? Surely not in new manufacturing capacity, since China seems to be having little difficulty providing the world with all of the manufactured goods it needs. And not in high tech either, since it is obvious that companies with tens of billions of dollars to play with – we’re talking about Microsoft and a couple of others – are completely clueless about what to do with all that money.

YMCA Oil Rigs

It would only be half-joking for me to suggest that sinking an oil well in the basement of every YMCA in America might produce better returns thank Microsoft has been earning on its money lately. Not that such a strategy would fly with shareholders (even though it well might have during the dot-com years). These days, most companies are tending to put their money where the lion's share of investable money has been going anyway – into paper assets. Shareholders would be the last to question such a strategy, since there is probably not a single one of them in America so miserably stupid as to believe that the allegedly “strong” U.S. economy – the one we keep reading and hearing about ad nauseum -- is so robust as to actually warrant a little capital investment.

Stock buy-backs may be just the thing to keep shareholders happy, at least for the time being. But as a long-term strategy for growth, they rank right up there in the smoke-and-mirrors department with the “wealth effect” created by inflated home prices.

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Learn My Secrets

Would you like to be able to forecast trends and price reversals as accurately and confidently as Rick’s Picks? Have you tried other trading systems, only to find them too complicated or otherwise unhelpful? Then don’t miss my Hidden Pivot Seminar this autumn in New York City. Plans are firming for a weekend session in early October, so please let me know via e-mail if you think you might attend. This will be a no-frills version of the course that I gave in Denver, offered at a significant saving over the original price.

There will probably be just one more session offered after that on the West Coast, but that would be the last for a long while. The course includes post-grad mentoring via a chat group that some of my former students have set up. If you’ve been impressed with the accuracy of my forecasts, this is an opportunity you cannot afford to pass up. Let me hear from you soon, since seat space is limited.