One of the biggest trends for 2012 already has started: For the first time, we
saw corporations bypass banks as a source of lending. Instead of begging leery
and unsteady banks for new capital to fund expansion, companies chose to issue
bonds to raise the money on their own. Now, you might hear some shocking
statements from the major news outlets like CNBC, specifically from Herb
Greenberg, who will tell you that companies that issue debt to implement
corporate stock buybacks are going down a dangerous path. This couldn't be
further from the truth. Essentially, companies can issue bonds at very low
interest rates and use the extra capital to: Refinance their existing debt at
lower interest rates Buy back their existing stock Buy out their competitors All
of which increase shareholder value and earnings per share. Currently, companies
are issuing new debt at a rate of up to $60 billion per week (up to a $3
trillion annual pace), and I expect this trend to persist until at least 2013.
This is because the Fed has released its playbook for how to handle the recovery
through 2013, and the conditions will remain just right for corporate borrowing.
First, the Fed isn't going to raise interest rates. Higher interest rates
would exacerbate the debt problem, and that's the last thing the recovery
needs. Plus, the Fed reiterated in its latest FOMC statement that it is going to
continue to flatten the yield curve via Operation Twist . This effectively helps
to lower borrowing costs for Corporate America even further, so these interest
rates will encourage even more debt offerings as companies take advantage of
ultra-low interest rates and continue aggressively buying back their outstanding
stock . Many blue-chip companies are taking full advantage of this opportunity:
Altria Group (NYSE: MO ) plans to buy back $1 billion in stock by the end of
2012. AutoZone (NYSE: AZO ) plans to repurchase $659 million in stock in Q2
2012. Dollar Tree (NASDAQ: DLTR ) plans to buy back $1.5 billion in stock. Dr
Pepper Snapple Group (NYSE: DPS ) has authorized a $1 billion stock buyback
program on top of its ongoing $2 billion stock buyback program. Reynolds
American (NYSE: RAI ) has pledged to purchase $2.5 billion of its stock by
mid-2014. This is going to be the first catalyst that pushes these stocks higher
in the new year, and that's just the tip of the iceberg: New Years Prediction
#2: Upward Swing in Jobs and GDP
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