 Good day fellow investors welcome to the stock market news where we give a long-term perspective on all the mambo jumbo that's going on day by day. So these topics are earnings we're entering earnings season and we're going to give a long-term perspective on that what are the companies doing with the 20% earnings growth that they have been enjoying last quarter and expected to enjoy this quarter longer-term earnings forecasts what will happen next for stocks and then we're going to discuss buybacks as a lot of companies are increasing their buybacks record high buybacks and then we're going to finish with a story about soccer how Ronaldo goes to Juventus and the house that's related to the stock market with Fiat Chrysler and then an inspirational story from the Croatian national team. So let's start with earnings and the S&P 500 all good this week on the stock market five-day change 1.5 percent year-to-date we are 5% up so all well the S&P 500 is doing well stocks are doing well and earnings are doing extremely well however the stock market is all about anticipation okay the earnings that are doing good now have already been priced in in the last year or two and the stock market is all about the future and one commentary that I got a lot a few months ago was should we buy banks in a raising rate environment higher interest rates better for banks however banks didn't do that good lately let's see so if we look at city group year-to-date down 10% and also today's change it was down on Friday 2.2% because earnings did this a point however if you look at the three-year chart city group did relatively well 14% but from the bottom 2015-16 it did even better almost what 50-30-50% even more up so the key with stock market is to anticipate what will happen on the longer term not what's going on now those who bought thinking that interest rates will do good during 2018 or during the fall of 2017 didn't have positive returns so that's also what we're going to do with earnings look at what will happen next not now that is what you have to focus when investing in stocks and the growth here is the earnings growth 20% so two quarters with 20 plus growth in earnings that's all thanks to the stimulation first coming from nine years of easy money low interest rates lower taxes lower unemployment improving commodity prices etc all is going great all is going amazing amidst low credit and higher demand but the stock market is always about what will happen next look at the two lines here the dark blue are actual earnings and the light blue is the stock price and you can see how stock prices picked up much prior to actual earnings picking up so it's all about what will happen next will the stock market and there lies a concern of mine if we look at the last earnings calls the 23 earnings calls that happened until now for the second quarter you can see that only once tariffs have been mentioned however currency issues have been mentioned 12 times and cost of raw materials transport costs oil and gas prices wages have been mentioned much more often than tariffs one out of 23 earnings call where tariffs were a concern this is because almost 40% of SAP 500 earnings come from abroad and a stronger dollars lowers those earnings also analysts that are usually very very bullish have already come down their estimation for growth in earnings in 2019 for now they are projecting 6.9% for the first quarter and then okay 10.8% from the second quarter however it's very difficult to beat what has been going on thanks to lower taxes lower taxes have really impacted earnings this quarter amidst economic growth and everything however that focus that estimation of growth in q1 2019 is already what you have to focus on and the market will soon focus on 2019 they're all now still engaged in 2018 but with great numbers but they will start soon shifting their focus on 2019 and the question is what's next how are we going to beat 2018 and make 2019 look better and that's what you have to focus on when investing in stocks what comes ahead and you have to think ahead of Wall Street so that you get an advantage a little bit more later and nobody is really thinking ahead because everybody is doing buybacks so all the gains all the cash flows are mostly invested in buybacks i'll show you later how much they are spending on buybacks so now that stocks are extremely expensive they are spending all their money on buying back that expensive stocks to push the stock price even higher and that's in the long term something not good if earnings fall down so we have lower earnings growth that might turn into negative especially with higher interest rates higher cost tariffs and whatever so not such a nice situation but if you focused on the 20% earnings growth now you are not focused on what will happen next so let's see a company that did a lot of buybacks at expensive prices is General Electric in 2016 i wrote an article at the end of 2016 saying how that's such a bad decision and the change in 2017 and 2018 confirmed that so i'm allowed to talk about buybacks so stock buybacks are booming Wall Street Journal but share but share prices aren't budging because what will happen next Wall Street already starts to think okay what will happen next here you can see how much our companies spending on buybacks SAP 500 companies have spent almost 200 billion on buybacks in the first quarter of 2018 and you can see how something similar was going on in 2007 we all know what happened next and when stock prices were cheap in 2009 nobody did buybacks when stock prices were expensive in 2007 highest record level buybacks similarly again and it will be again equal in the next crash further five-year buybacks return on investment depends on what is the stock price doing and what are the earnings as the stock prices have done well over the last five years returns on buybacks have been extremely positive but returns on buybacks in 2008 were extremely negative so if you put it in a bond you cannot have negative returns but look at those returns if you buy a short-term bond so it's not that always buybacks bring good returns further the return on investment has been declining as stock prices went up except for the big buybacks for the five fang stocks that do buybacks all others haven't seen such good returns lately and improvements are not there j bowen president of bowen hains company manager of the two billion tempa firefighters and police officers pension fund has says corporate America has such an obsession with bottom line growth long term i don't like it long term buying such expensive stocks is not smart the returns will likely be negative and smart people long term pension fund investors know that it's not the right thing to do give them the money give them the dividends so that they can invest in distribute don't overspend it expecting that the world will never change because a buyback is good if earnings stay stable or grow if earnings decline as it is possible in the next recession then stock prices drop and then it's such it's such a stupid thing to do buybacks now especially in the late part of the economic cycle as general electric is an example of what can happen so on aggregate when everybody's doing buybacks just because everybody's doing buybacks without looking at book values without looking at possibilities without investing in the development of the business the tax money hasn't been invested in new staff new technology research no just buybacks and that's extremely dangerous for the long term and why are they pushing buybacks and why did trump lower taxes to push stock price higher because he knew they will do buybacks because the higher the stock price the higher is the household wealth and americans have surpassed 100 trillion dollars in wealth the wealth is now 50 above what it was in 2007 however the weekly wage is not even up 10 inflation adjusted since 2007 it's very important to create such a sense of wealth because then you spend more you're more likely to take credit and the economy it's a self-reinforcing cycle that pushes everything up however when that self-reinforcing cycle that is made on stimulus easy money easy credit reverts then you have all that house of cards drop and go down the drain as it happened in 2008 and everything that they are doing now is preparing for another 2008 perhaps even worse so that's the long-term perspective on what's going on everything is looking good now everybody's high but long term the fundamentals are missing another thing from buybacks 57 of stocks that did buybacks have failed to beat the s&p 500 annual return okay the annual short term but more and more stocks are failing to beat the s&p 500 so it's not smart to buyback your own stock that's expensive better invested in a bond so my question is okay buybacks taxes growth economic growth but how interest rates are rising costs are rising commodities prices are rising what's next for the stock market and that's the question that people will start asking themselves somewhere in the fall about what's next in 2019 and we'll be here to watch what's going on in the meantime we'll stay hedged in cash and owning good businesses now on the soccer football team ronaldo signs for you inventus he signed that they paid 100 million euros or something and they will pay him 30 million euros per year however fiat chrysler workers in italy immediately went to strike because the company owning fiat also own uventus and they want to strike because they haven't seen price increases wage increases for a while and when are they going to strike they're going to strike on monday 16 and tuesday 17 holidays in italy start ferro agosto on sunday 29 sunday 30 so they are going to have a beautiful long weekend they didn't strike in the middle of the week enjoying the italyan sunshine somewhere at the coast so very interesting italyans will always be italyans and we must admire their great lifestyle and how they live except for italyans and this just a funny thing how buying ronaldo affects fiat because workers go strike and demand higher wages so that's a funny story except for that another soccer story with the world cup kroatia has reached the world cup finals and i want to share a very inspirational story for me they have really inspired me they are keep inspiring me because all the players there i are around my age we have all been born in the communist republic of yugoslavia all from very humble backgrounds you can see here modrich chasing sheep it's coincidence but it's him five-year-old modrich the best player in kroatia so very humble backgrounds but they show what nobody was a star when they were 18 they show what you can do if you go into the world if you put your head head down you work hard for 10 15 20 years even if you are from a small city like i am from kroatia from a small country from a communist country you can reach the world cup final and as i am somewhere like that with their age they are very motivational to me and i have put my head down have been working hard and expect to continue to work hard for the next 10 15 20 years and perhaps i won't win the world cup of investing like buffett did but if i'm in the top 20 if i'm there playing in the world cup of investing in 20 years i'll be happy they show that even if you are from a small country it is possible so tomorrow cheer kroatia if you're not from friends if you're from friends they're all young players big country they will win the next three world cups leave it for kroatia to this one with that inspirational note thank you for watching looking forward to your comments and i'll see you in the next video