Bill Murray's 'Meatballs' speech and the endless bull market

It just doesn't matter. It just doesn't matter. It just doesn't matter! ...

Bill Murray In 'Meatballs'
Paramount | Getty Images
Bill Murray In 'Meatballs'

Every time the major stock market indices back off by just a few percentage points from all-time highs, investor anxiety jumps. Every retreat since 2009 is perceived as an existential threat to the bull market. Yet we have seen few stock market corrections relative to the decades before the Great Recession.

But if some of the most astute investors of our time — Ray Dalio, Paul Singer and Carl Icahn — are screaming "danger, danger" about the stock market, then who are we to argue?

There's no need to argue.

Forget about being bullish or bearish.

Raised on valuation metrics and careful analysis? You'll just be frustrated.

A focus on just three factors can help explain this market and why no matter how many good sound bites can be rattled off about the "impending crash," most investors would be better off minding the hopelessly optimistic — or is it joyously pessimistic? — words of Bill Murray's "Meatballs" character in his pep talk to campers: "It just doesn't matter!"


When a company buys back its own shares in the open market, it improves the supply and demand balance for its stock. It's taking shares out of the available supply, in effect, and raising earnings for each remaining share — that's why they call it earnings per share.

Short-term supply and demand of stocks are important, but over time companies are supposed to give us a reason to make us want to buy their shares. Based on how far below some of the major buyback companies are from their all-time highs — Advance Auto Parts, Apple and IBM — investors may be starting to care about the reasons behind the demand for the aforementioned stocks.

Buybacks are down from record highs as the year comes to a close, but if you take into account that they are that way in a pre-shrunk stock supply environment, they still pack a lot of punch. The stock market has shrunk by trillions of dollars since the last bear market low in 2009.

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Cheap debt

This is a good segue to interest rates, because they go hand-in-hand with buybacks. Corporate America has issued a record amount of debt, in large part to fund their buyback programs. With the cost of servicing debt at record lows, companies have had both an easy time selling debt to yield-hungry investors and in servicing their debt. Since the last bear market low in 2009, corporate America has been the biggest buyer of stock.

Microsoft just announced a $40 billion buyback that would be one of the biggest of the past decade. Many other authorized buybacks are still open. It's a pillar of strength for stocks that will go on until corporate debt-to-equity ratios are so high that investors have less appetite for their bonds.

Passive investing

Investors' penchant for passive investing is the rocket fuel that ties all the market mechanics together. It dampens volatility, helps prevent downside protection for individual stocks and makes the biggest stocks bigger. Most importantly, more investor cash is focused on a smaller subgroup of stocks, potentially further dampening volatility.

The active vs. passive debate is not what this is about; it is simply that corporate results and market-moving news takes a backseat to the demand for stocks, which may otherwise not be widely owned, just because they are part of a major index.

This is why active managers feel like a frustrated appliance repairman who complains no one ever calls him anymore. It's what frustrates an entire generation of investment professionals who were raised on risk management, research and value investing. It's why saying a stock is under- or overvalued is like shouting into an abyss. This is why we can have a stock market that shouts, "Everything is awesome!" in an economy that can't be jolted back to life. It's why central banks can't generate inflation due to global overcapacity and aging demographics, but stocks are sending the opposite signal.

Anyone who has seen 'Meatballs' knows that when Bill Murray gave his pep talk, the camp was facing 12 consecutive years of losses to its bitter, much better-funded rival camp Mohawk. Investors have been lucky by comparison — eight years of a bull market! Even if they don't understand or trust it. But maybe there is nothing better to trust right now than buybacks, cheap debt and index investing.

I am afraid that this too-good-to-be-true market will blindside me. One day the situation will change, and these "winners" will make us all losers if we aren't quick to get out. But all those predicting that the "one day" is coming don't have any idea when these three conditions will go away. You can complain all you want that all the central bank money printing is going into financial assets, but that doesn't change anything.

The wrong Bill Murray movie?

FactSet data has shown that companies with stock repurchase programs have underperformed the S&P 500 in the past year by more than 5 percent. In the last three years, the number of $1 billion-plus buybacks has shrunk. Buybacks have become less of an underpinning for stocks, but even if buybacks decrease a little, they still have a powerful effect on stocks because they are working off a smaller base, so we really don't need buybacks to be bigger.

The Deutsche Bank crisis is just another reason that rates will be lower for longer and would be a good excuse for the Fed to push a potential rate hike out to 2017.

Passive investing is a force that is not going away anytime soon. It continues to squeeze money into fewer stocks, pushing more into bigger names, and those bigger names are also the ones who spend the most on buybacks. The more it goes on, the more of a self-fulfilling prophecy it becomes.

So the next time you cite valuation measures, weak GDP, politics and anything else that is confounding you as to why stocks are trading at levels you consider lofty, just remember that the aforementioned market metrics are a more powerful force than you realize.

If we are being positive against our better judgment, there's a good reason. No one should be under the pretense that one or more of these factors won't eventually slow down enough to make it less influential, but until then, there really is nothing left to do but go along for the ride and raise some cash along the way.

Is that scary? I think it is downright comforting. Do nothing, and make money as these three factors repeat over and over again each day, propping up the market.

Nothing changes.

Maybe "Groundhog Day" was the Bill Murray movie I should have referenced.

By Mitch Goldberg, president of ClientFirst Strategy.

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