Words of Wisdom from Wayne: Bank of England Takes Road Less Traveled

Wayne Ellis

England Takes the Road Less Traveled (AP)

The Bank of England left investors scratching their heads this week when it did something that neither the United States nor Japan had been able to do in an attempt to right a foundering economy. The U.K. central bank opted not to increase government stimulus. Currently, the Bank purchases some 375 billion pounds worth of government bonds from English financial institutions, and the thought was that the country’s Monetary Policy Committee would add another 25 billion pounds to that amount. That wasn’t the case, as many members of the Committee weren’t convinced that adding another 25 billion pounds would improve the country’s chances of avoiding a recession.  Only time will tell if that group was right or wrong.

Corporate Buybacks Pass $1 Trillion Mark — Another Credit Boom Looming? (CNBC)

Brian Reynolds, chief market strategist at Rosenblatt Securities, said that corporate buybacks have passed the $1 trillion mark for the first time since 2009. And the rate of buybacks is increasing with February seeing the most corporate repurchases of outstanding shares in the last five years. Investors should note that when a company buys back its own shares from the market to reduce the float, it also artificially inflates the share price. Reynolds also passed along this note of caution: share buybacks are indicative of a corporate credit boom, and such a boom preceded the 2008 global financial crisis. So investors should keep an eye on this situation, in case history repeats itself.

Creating New Circulation Numbers by Spinning off a Business (Bloomberg)

Media giant Time Warner, Inc. announced this week that it will initiate its third major spin off later this year when its magazine unit will become a separate publicly traded entity. By spinning off its magazines, the parent company (Time Warner, Inc.) — will be able to focus on its television, film and production businesses. The new magazine entity — publisher of Time, People and Sports Illustrated – joins Time Warner Cable Inc. and AOL as stand-alone businesses created from the parent company since 2008.  Time Warner Magazines have been valuated at $3.2 billion, but we’ll see where investors think the shares really belong when they’re on their own.

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