Russia and China

Partnership is much better for China than it is for Russia

Just how much better might not become clear for a few years yet



IT IS THE love triangle of global politics. Since the second world war, China, Russia and the United States have repeatedly swapped partners. The collapse of the Sino-Soviet pact after the death of Josef Stalin was followed by Richard Nixon’s visit to China in 1972 and Mikhail Gorbachev’s detente with China 30 years ago. Today’s pairing, between Vladimir Putin and Xi Jinping, was cemented in 2014 after Russia annexed Crimea. In each case the country that was left on its own has always seemed to pay a price, by being stretched militarily and diplomatically.

This time is different. Though America is out in the cold, the price is falling chiefly on Russia. China dominates every aspect of the two countries’ partnership. Its economy is six times larger (at purchasing-power parity) and its power is growing, even as Russia’s fades. What seemed a brilliant way for Mr Putin to turn his back on the West and magnify Russia’s influence is looking like a trap that his country will find hard to escape. Far from being an equal partner, Russia is evolving into a Chinese tributary.

That may seem a harsh judgment. Russia is still a nuclear-weapons state with a permanent seat on the UN Security Council. It has modernised its armed forces and, as in Syria, is not afraid to use them. This week Russian and Chinese warplanes conducted what appeared to be a joint air patrol for the first time, causing alarm when South Korea said a Russian plane had intruded into its airspace.

But the real news is how rapidly Russia is becoming dependent on its giant neighbour (see article). China is a vital market for Russian raw materials: Rosneft, Russia’s national oil company, depends on Chinese financing and is increasingly diverting its oil to China. As Russia seeks to evade the hegemony of the dollar, the yuan is becoming a bigger part of its foreign-currency reserves (the share of dollars fell by half to 23% during 2018, while the yuan’s share grew from 3% to 14%).

China supplies vital components for Russia’s advanced weapons systems. And China is the source of the networking and security gear that Mr Putin needs to control his people. Last month Russia struck a deal with Huawei, a Chinese telecoms firm distrusted by America, to develop 5G equipment—thus rooting Russia firmly in China’s half of the splinternet.

This suits China just fine. It wants a lasting friendship with Russia, if only to secure its northern border, the scene of clashes in 1969, and a source of worry in the 1990s when Russia looked as if it might drift into the West’s orbit. Russia also serves as an enthusiastic vanguard in China’s campaign to puncture Western ideas of universal human rights and democracy, which both countries see as an incitement to “colour revolutions”.

Mr Putin can point to several arguments for his partnership with China, in addition to their joint hostility to the liberal project. One is expediency. Western sanctions, imposed after his annexation of Crimea, the meddling in American elections in 2016 and the lethal use of a nerve agent in Britain two years later, have left Russia without many alternatives.

Mr Xi has also given Russia cover for its military action in Syria and, to some extent, Crimea. And, in contrast to the end of the 17th century, when Peter the Great looked to Europe as the wellspring of progress, Mr Putin can plausibly argue that the future now belongs to China and its system of state capitalism.

However, Mr Putin is mistaken. For a start, the Russian version of state capitalism is a rent-seeking, productivity-sapping licence for the clique that surrounds him to steal freely from the national coffers—which is one reason why Chinese investment in Russia is rather limited.

There is also a contradiction between Mr Putin’s claim to be restoring Russian greatness and the increasingly obvious reality of its subordinate role to China. This creates tension in Central Asia. Because stability in the region is important for China’s domestic security—it wants Central Asia to keep Islamic extremism at bay—the People’s Liberation Army is stationing troops in Tajikistan and staging exercises there, without consulting Russia.

And, at some level, the aims of Russia and China diverge. There is a limit to how much ordinary Russians will forgo Western freedoms. If the regime holds on to power by means of Chinese technology, it will feed popular anger towards China and its Russian clients.

Who can say when the strains will show? Imagine that Mr Putin chooses to step down in 2024, when the constitution says he must, and that his successor tries to mark the change by distancing Russia from China and turning towards Europe. Only then will it become clear how deep China’s influence runs and how much pressure it is prepared to exert to retain its sway. Russia’s next president may find that the country has lost its room for manoeuvre.

Does this mean that the rest of the world—especially the West—should seek to prise Russia from China’s embrace, before it is too late? That idea will tempt those diplomats and analysts who think Russia is too important to alienate. But it seems unlikely. America does not suffer from the Xi-Putin alignment today as it would have done in the cold war. Although Russia and China do indeed undermine the West’s notion of universal values, with President Donald Trump in the White House that doctrine is, alas, hardly being applied universally in any case.

What is more, China’s influence over Russia has compensations. An angry declining power like Russia is dangerous; it may feel tempted to lash out to show it is still a force to be reckoned with, by bullying Belarus, say, or by stoking the old fears of Chinese expansion into Siberia.

But China has no appetite for international crises, unless they are of its own devising. As Russia’s partner, China can serve as a source of reassurance along their joint border, and temper Russia’s excesses around the world.

Sweet patience

Rather than railing against Russia or trying to woo it back, the West should point out its subordination and wait. Sooner or later, a President Alexei Navalny or someone like him will look westwards once again. That is when Russia will most need Western help. And that is when the man or woman in the Oval Office should emulate Nixon—and go to Moscow. ■

Precious Metals Reaching Initial Targets Prior to Aug 19 – Now What’s Next?


October 5 ADL predictive modeling forecast chart

Our incredible October 5 ADL predictive modeling chart, below, highlights just how powerful some of our proprietary price modeling tools really are.  Imagine having the ability to look 10+ months into the future to be able to attempt to understand exactly what price may attempt to do and to be able to plan and prepare for these moves well ahead of the “setup”. 

So far, our analysis of the precious metals has been spot on and we’ll continue to try to update our members and followers as this movement continues.


 

RECENT TRADE WITH 3X Gold ETF:

The ADL system hs played a large roll in our short term trading result for August already having closed 24.16% profit this month – See Here




This original prediction based on our advanced Adaptive Dynamic Learning (ADL) predictive price modeling system suggests price should be near or above $1600 by August/September 2019 (the higher yellow dash lines within the blue rectangle).  If these predictions continue to hold up as valid and true, then we would expect the price of Gold to target these levels as a “leg 1 move” then consolidate a bit before attempting to move higher.

Weekly Gold chart highlights our expectations

This Weekly Gold chart highlights our expectations for the current and future price rotations in Gold. 

As you can see, we are still expecting a $1600 initial upside price target (shown as $1595) and a brief price rotation after that level is reached.  The reality of this move is that Gold could rally well above $1600 before stalling, but we believe the $1595 level is a safe call for this move and we believe the rotation will be fairly short-lived before the price continues to rally further.

One interesting point to make is that the $1595 level is well above the highest (RED) Fibonacci projected price target.  These types of moves by price can happen in extended trending.  It happens that the Fibonacci price modeling system predicted these ranges based on historical price rotations and recent trends. 

Yet when something happens in the markets that result in trends extending beyond the predicted levels, it suggests that a larger, more volatile, the price trend has established which could push price levels to 1.6x or 2x the precious target level ranges.  This would suggest $1700 to $1850 as a new upside target level (eventually).




As Silver starts to move higher, finally breaking above historical resistance and really starting to rally as Gold has taken off, one very interesting price setup happened this week – a VERY LARGE RANGE BAR.  Silver has historically shown a bar range volatility of near or below $0.40.  On August 13, Silver set up a total high-to-low bar range of just over $1.00.  This massive increase in volatility suggests that Silver could be setting up for a very explosive price move in the near future. 

If volatility continues to stay near 1.5x to 2.5x historical levels, Silver could rally $6 to $10 in a very short 14 to 30 days.

What does this mean for our precious metals trade and for our members and followers?  It means that the metals are “loading up on fuel” at the moment and preparing for something BIG.


 

CONCLUDING THOUGHTS:

How is this aligning with our August 19 breakdown prediction and how should traders plan for these moves and protect their assets?  Right now, if you have not already set up and entered your precious metals trades, you should consider scaling into trades soon and/or waiting for this rotation that we are suggesting is only about 5+ days away.  Silver is still an incredible opportunity for traders and Gold should stall near $1595, then likely rotate a bit lower towards $1525 before bottoming.  Therefore, any entry below $1540 in Gold or below $17 in Silver is still a solid entry-level.

Now, before we carry on with our research, we want to highlight the fact that many things are aligning with our August 19 global market breakdown prediction.  We’ll go into more detail about this in Part II of this research article and attempt to detail our expectations, but we want to warn you that we believe extended risks will start to become more evident on or after August 19, 2019.  This is not a warning that should prompt you to immediately start selling off everything you own and setting up for a massive short trade in the markets.  What it means is that August 19 will likely be the start of an extended “rounded top” or other types of extended top formation that will provide a more clear projection of targets and opportunities as it plays out.

You’ll see more in Part II of this research post (delivered to you just in time before the weekend)

MORE UNIQUE ANALYSIS ON THE BEAR MARKET IN STOCKS AND METALS, MINERS, AND S&P 500

I warned that the next financial crisis (bear market) was scary close, possibly just a couple weeks away. The charts I posted will make you really start to worry. See Scary Bear Market Setup Charts.

In early June I posted a detailed video explaining in showing the bottoming formation and gold and where to spot the breakout level, I also talked about crude oil reaching it upside target after a double bottom, and I called short term top in the SP 500 index. This was one of my premarket videos for members it gives you a good taste of what you can expect each and every morning before the Opening Bell. Watch Video Here.

Detailed report talking about where the next bull and bear markets are and how to identify them. This report focused on gold miners and the SP 500 index. My charts compared the 2008 market top and bear market along with the 2019 market prices today. See Comparison Charts Here.

Dispatches From Bond-Land


Jared Dillian


First, please do me a favor—I would love it if you would follow me on Twitter.

By this point, you have probably heard that $15 trillion of bonds are trading with negative yields, which represents 25% of all sovereign bonds outstanding. Lots of people are indignant about this—but it’s no use getting mad at the market.

Lots of people say it doesn’t make sense. It makes sense to me, and to a few other people. If you see something in the market that doesn’t make sense, it’s usually best to stay away, rather than picking a fight with it.

We’re not in uncharted territory here. Let’s do a market psychology exercise.

Back in 2012, ten-year yields were actually lower:


 
And again in 2016:


 
Both of those times (and I remember this quite clearly), people were bullish on bonds and said that yields were going lower. Instead, they rocketed higher. They said that the deflation/disinflation that we were experiencing was unstoppable, and a whole bunch of other stuff, that turned out not to happen.

In 2016 I presented a short bond thesis at a conference and I practically got hounded off the stage. Nobody remembers this, but everyone was really bullish on bonds back then. It was actually kind of a weird situation. The organizers of the conference avoided me after that, like I was radioactive.

Now practically nobody is bullish! Why is that? I suppose the inflation picture is markedly different—we have tariffs and there are wage pressures and such—but I don’t think that’s what this is about.

My thesis, which I have carried around for 20 years: when everyone believes something, it is usually wrong.

What does everyone believe right now? That negative yields are unsustainable.

Maybe that is true. Maybe not.


Bubbles in Everything

You can have a bubble in any asset class, from little stuffed animals to lines of computer code. Why not bonds?

The bitcoin bubble burst when there were more Coinbase accounts than Schwab accounts, and there was a bitcoin rapper in the New York Times. We don’t have any bond rappers yet, so I’d say the bull market has a ways to go.

George Soros always said that if he saw a bubble forming he would get in there and try to make it bigger—which is pretty much the opposite of what everyone does.

What everyone does, is goes on Twitter to complain about it. It’s not just Twitter—negative yields was probably the biggest concern you guys listed in the bond survey.

Right now, people don’t believe in the trade, or understand it. This is going to continue until they do understand it.

There are also fundamental reasons which are plainly obvious—bad demographics and a savings glut, which creates huge demand for safer assets like bonds, pushing down yields. Both of those things were cited the last two times around (2012 and 2016), but not this time.

My opinion: smart people (including the owner of this website) predicted debt and deflation years ago. You know how it happens. Gradually, then suddenly.

Anyway, I can’t do one scroll through Twitter without someone freaking out about negative interest rates. Turn on the internet and see. But what if negative interest rates… are normal? What if they make sense?

Ask this question around certain people and they completely lose their minds. The last time I saw people get this indignant about a trade, it was… Beyond Meat. See how that turned out. I have experience with this sentiment thing. When something makes people angry, I have confidence that the trend in question will continue for a very long time. I think negative rates are not an aberration and could become a semi-permanent feature of finance.

When people start to believe in negative rates, they will probably come to an end.


Bond House

Lehman Brothers was a “bond house.” They were really good at fixed income—not so good at equities. Though equities did pretty well towards the end.

It was kind of hard not to be exposed to bonds at Lehman, even if you did work in equities. If you recall, the Barclays bond indices that we have today used to be Lehman bond indices. I got a lot of customer flow in the 20+ Year Treasury Bond ETF, TLT, and it was because Lehman had the index.

I also took six weeks of bond math when I joined the firm in the summer of 2001, and most of it stuck with me.

A lot has changed since then. Most of the trading activity in US Treasurys is electronic.
 
Back then, it was all high-touch—carried out by actual humans.

A lot has remained the same. It’s still fundamentally the same market that it was 20 years ago. There’s a lot more debt, but one thing that has remained constant is how difficult it is to trade off of supply—the idea that more bonds makes rates go higher. And, people believe strange things about the bond market these days—they think more supply makes interest rates go down.

If you think things are stupid, they will probably get more stupid. You can put that on my tombstone.

PART 4 – Global Central Banks Move To Keep The Party Rolling

Chris Vermeullen


In this last segment of our multi-part research post regarding the US Fed and the global central banks, it is becoming evident that the fear of a further market contraction is resulting in the decrease in rates and the push for additional QE functions.  Our research has shown that the global economy has partially recovered from the 2008-09 credit market collapse, but the process of the recovery has resulted in a “blowout” type of event where shifting capital intents and the transition from the 19th century economic model towards a new 21st century economic model is setting up the global markets for a massive rotation event over the next 12 to 24 months – possibly longer.

PART 1 OF THIS ARTICLE

PART 2 OF THIS ARTICLE

PART 3 OF THIS ARTICLE


It is our belief that capital is still doing what capital always does, seeking out the best opportunities for safety and returns.  Right now, that location is easily found in only certain segments of the markets; volatility, precious metals, certain energy sectors, US Treasuries and CASH.  The future events, including the massive rotational event that we believe is about to unfold in the global markets, will change the way capital is deployed for many years to come. 

It is very likely that this rotation event will create incredible opportunities for skilled technical traders or subscribers to our trade signal newsletter over the next 12 to 36 months and will likely prompt a further shift towards the new 21st-century economic model that we believe will be the ultimate outcome.

Taking a brief look at our recent history highlights the fact that capital becomes fearful about 12 to 16 months before a major US election event.  Additionally, certain other factors related to the global economy heighten this fear as US/China trade issues, global debt issues and economic output issues continue to plague the markets.  The combination of these types of events set up a “perfect storm” type of economic cycle where skilled technical traders are just waiting for the impact event to hit before the markets begin a bigger rotational event.

These types of events, similar to the 2000 and 2008-09 market crash event, are a process where price rotates out of a normal range and attempts to explore lower price levels that act as price support.  It is not uncommon for these types of events to happen, although the severity of these events is difficult to determine prior to their execution. 

The US Fed and global central Banks set up an easy money process over the past 9+ years that allowed for capital to be deployed as a process that has setup this current massive rotational event. 

At first, the intent was to support collapsing markets and institutions – we understand that. 

But the nature of capital is to always seek out suitable safety and returns, so capital did what is always does hunt out the best opportunities for profits.  First, it rallied into the crashing real estate market and emerging markets – which had been crushed by the 2008-09 credit crisis event. 

Next, it piled into the Asian markets and healthcare/technology markets.  At this time, it also started piling into the startup/VC markets throughout the world as well as certain commodities.  The recovery seemed to have created a booming and cash-flush market for anyone with two dollars to rub together.

Then came the 2015-16 market contraction and the end of the US Fed QE processes.  At this time, China realized the need to control capital outflows and the US/Global markets slowed to a crawl as the US Presidential election cycle ramped-up.  It was just 12 months prior to this 2015-16 event that oil crashed from $114 to $46.  Within 2015-16, Oil continued to crash to levels below $30.  This was the equivalent of the blowout cycle for the global economy.  Headed into the 2016 US elections, the global economy was running on only 5 of 8 cylinders and was limping along hoping to find some way out of this mess.

The November 2016 US elections were just what the global economy needed and everyone’s perceptions about the future changed almost overnight.  I remember watching the price of Gold on election night; +$75 early in the evening as Clinton was expected to win, then it continued to fall back to +$0 fairly late in the evening, then it fell to -$75 as the news of a Trump win was solidified.  This rotation equated to a nearly 10% rotation in less than 24 hours based on FEAR.  Once fear was abated, global investors and capital went to work seeking out the safest environments and best returns – like normal.

This resurgence of capital into the markets set up of a new SOP (standard operating procedure) where capital began to be deployed in more risky environments and into broader and bigger investment structures.  This is the SETUP I’m trying to highlight that was created by the US Fed and central banks.  I don’t believe anyone thought, at that time in early 2017, that the current set of events would have transpired and I believe global governments, central banks, and global financial institutions thought, “Party on, dude!  We’re back to 2010 all over again”.  Boy, were they wrong.

This time, the global central banks, governments and state-run enterprises engaged in bigger and more complex credit/debt structures while attempting to run the same game they were running back in 2010 and 2011.  The difference this time is that the US Fed started raising Fed Fund Rates and destroyed the US Dollar carry trade while putting increasing pressure on the global market, global debt and global trade.  The continued rally of the US Dollar after the 2018 lows helped to solidify the advantages and risks in the markets.  This upside rally in the US Dollar, after the 2014 to 2016 rally, really upset the balance of the global markets and setup an increasing pressure point for foreign markets.

It soon became very evident that risks in the foreign markets could be partially mitigated by investing in the US stock market and by moving capital away from risky currencies and into US Dollar based assets.  Capital is always doing what it always does – seeking out the best environment for returns and protection from risk.  Thus, we have the setup right now – only 15 months before the 2020 US Presidential elections.  What happens now?

This setup is likely to prompt a rotation in the global markets as well as within the US stock market. 

It is very likely that a continued contraction in consumer and banking activity (think business, real estate, trade, commodities, and others) will prompt a contraction in global economics very similar to what happened in 2014~2016.  This process will likely put extreme risk factors at play in some of the most fragile economies and state-run enterprises on the planet.  Once the flooring begins to crack in some of these markets, we’ll see how this event will play out.  Right now, our eye is watching Europe and Asia for early warning signs.

The US Fed will continue to manipulate the FFR levels in an attempt to help mitigate the risks associated with this contraction event.  It is likely that the US Fed already sees what we see and it attempting to position themselves into a more responsive stance given the potential outcomes. 

Inadvertently, the US Fed and global central banks presented an offer that was too good for anyone to ignore – easy cash.  What they didn’t expect is that the 2014 to 2019 rally in the US Dollar and US stock market would transition capital deployment within the global market in such a way that it has – setting up the current event cycle.

We believe a downside pricing event is very likely over the next 10 to 25+ days where the US stock market may fall 12 to 25%, targeting levels shown on this chart (or slightly lower) as this rotational event takes place.  Ultimately, the US markets will recover much quicker than many foreign/global markets.  Our estimates are that the recovery in the US markets will likely begin to take place near March or April 2020 and continue higher beyond this date.




This Custom Smart Cash Index chart highlights the type of capital shift activity we’ve been describing to our readers and followers.  It is easy to see that capital moved out of risky investments within the downturns on this chart and into the most opportunistic equity markets within the uptrends on this chart.  Remember, most opportunistic markets are sometimes outside of the scope of this Smart Cash index.  For example, this chart does not relate strength in the Precious Metals markets or other commodities/currencies.  All this chart is trying to highlight for followers is how capital is being deployed in viable global equity markets and when capital is exiting or entering these markets.

Given the current setup, we would expect a breakdown in this Smart Cash Index over the next 4+ months to set up a new lower price level establishing a base/bottom before attempting to move higher.  We believe the 100 level, shown as historical support, is a proper target price level for this move initially.




Lastly, we believe capital is moving aggressively into the precious metals markets and we urge all skilled technical traders to pay attention to this chart of the Gold/Silver ratio.  If our analysis is correct and a larger rotation price cycle is about to unfold in the global markets, which may last well into 2020 (or beyond) for certain global markets, then you really need to pay attention to the upside potential for this Gold/Silver ratio.

As we’ve drawn on this chart, if this ratio recovers to 50% of the 2011 peak levels as this rotation unloads on the global market, this would push Gold and Silver prices to levels potentially 60% to 140%+ higher than current levels.  I understand how hard it is to understand these types of incredible price increases and how they could possibly be relative to current prices, but trust us in our research. 

Gold and Silver prices have been measurably depressed over the past 3 to 4 years.  Unleashing the real valuation levels of these precious metals at a time when risk factors are excessive suggests that Gold could easily be trading above $3200 and Silver above $60 to $65 within 6 to 12 months.

CONCLUDING THOUGHTS:

In closing, we want to urge all skilled technical traders to keep a very open perspective to the “Party on, Dude” mode of the global central banks and be aware that a very fragile floor is the only thing holding up the markets in another massive US presidential election cycle event.  In our opinion, the writing is already on the wall and we are preparing for this rotational event and alerting our members on what to do to profit from these moves.

The Federal Reserve and global central banks will attempt to keep the party rolling for as long as possible because they know the downside event could be something they don’t want to have to deal with.  So watch how these global central banks attempt to nudge public perception away from risks and towards the “party on” mode.  Stay alert.  Stay aware.  When this breaks, it will break quickly and aggressively.

Using technical analysis and proven strategies we can follow the market trends and profit from them no matter which the market moves. We bet with the market (the house) and provide entry, target, and stops for all trades we initiate.

Google parent Alphabet overtakes Apple to become new king of cash

Leadership switch follows concerted effort by iPhone maker to reduce its liquid reserves

Richard Waters in San Francisco


The financial reserves of Google’s parent company Alphabet have risen to $117bn while Apple’s cash pile has fallen to $102bn © Bloomberg


The corporate world has a new king of cash. The title for the company with the biggest financial reserves, held by Apple for a decade, has passed to Google’s parent, Alphabet, according to figures released in recent days.

The switch in leadership follows a concerted effort by the iPhone maker to reduce its liquid reserves, six years after it first came under pressure from activist investor Carl Icahn to pay out more of its cash hoard. Apple’s holdings of cash and marketable securities, net of debt, has fallen to $102bn, down from a peak of $163bn at the end of 2017.

Alphabet’s financial reserves have been moving in the opposite direction. At $117bn, its cash pile has risen by almost $20bn over the same period.

The rise of Google’s parent to the top of the corporate liquidity rankings puts its corporate wealth and power on conspicuous display at a politically sensitive moment. After being hit with €8.2bn in antitrust fines to the EU in the past two years, it now faces intense scrutiny in Washington.

The company’s preference for hoarding its money and spending it on trying to break into new markets, rather than using it to reward shareholders with buybacks or dividends, as Apple has done, also antagonises some investors.

“In general, their attempts to reinvent themselves with their new initiatives aren’t working out,” said Walter Price, a portfolio manager at Allianz Global Investors. “I wish they’d return more cash to shareholders and waste less.”

Too much liquidity?

The cash build-up has come despite a surge in capital spending. At $25bn last year — up 50 per cent from 2017 — much of the money has been pouring into real estate, as Google has added to its office holdings in cities such as New York and built data centres to support its growing cloud computing business.

Ruth Porat, chief financial officer, has been at pains to downplay the real estate investments, stressing that they are a one-off and that, in a normal quarter, 70 per cent of capital spending goes into servers and other new equipment.

The infrastructure to support artificial intelligence that Google had been building “requires a tonne of compute power”, said Youssef Squali, an analyst at SunTrust Robinson Humphrey. But he added that, like some other big tech companies, it had seen higher spending on machine learning feed through directly into higher revenue. That had left Wall Street generally comfortable with the spending surge.

It is in areas beyond Google’s core business that the complaints persist. Alphabet’s cash is produced almost entirely by its search advertising business, which has been supplemented by strong growth from online video service YouTube.

By contrast, Google’s other businesses — such as cloud computing, smartphones and home automation — are believed to have been consuming cash. Alphabet has also lost $15bn in the six years since disclosures began in businesses beside Google — something it describes as its “Other Bets”, ranging from the Waymo driverless car unit to the Verily healthcare division.

Google had done enough to “make the cut” in cloud computing, where it is chasing market leaders Amazon Web Services and Microsoft, said Mr Price. But he added that it had had little impact in breaking into other markets.

Heightened buybacks

Until last week, Alphabet has also stood out among big tech companies for not taking a more aggressive stance on returning cash to shareholders following the passage of US tax reform at the end of 2017. The new law applied an immediate — though reduced — tax rate to US companies’ overseas cash reserves, in the process removing the incentive to sit on the money rather than start paying it out.

Apple has responded to the change by spending $122bn on buying back stock and paying dividends in the past 18 months. Other companies to dig deep include Cisco Systems, which has cut its cash holdings from $35bn at the time of the new tax law to only $11bn.

Alphabet’s stock buybacks, by contrast, have been paltry. In the nearly four years since it began repurchasing its own stock, it has spent an average of only $1.7bn a quarter.

In that time, it has handed out more new shares in the form of employee stock benefits than it has bought back through its repurchase programme. As a result, the payments have done nothing to lift its earnings per share — the reason investors generally welcome buybacks.

Things could be about to change. Last week, Alphabet said its board had added $25bn to its stock buyback programme, taking total new repurchase authorisations to $37.5bn since the start of this year.

Ms Porat said the increase did not reflect any change in Alphabet’s financial priorities, and that its two top goals were unchanged: to invest in the long-term growth of its existing businesses, and to support acquisitions. However, the move contributed to a strong stock price rebound on the same day that the company also reported a rebound in revenue growth, dispelling worries about a sharp secular slowdown in its advertising business.

The cash mountain

Even the heightened rate of buybacks may not cap the growth in Alphabet’s cash mountain. Its free cash flow this year was forecast to top $30bn, rising to almost $40bn next year, said George Salmon, an analyst at Hargreaves Lansdown. The new buyback intentions “don’t represent a step change” big enough to actually reduce the company’s total reserves, he said.

Many investors are now counting on a steady increase in Alphabet’s stock repurchases as its search advertising business continues to mature — much as Apple responded to an end of growth in iPhone volumes with a more concerted effort to distribute its cash.

One potential avenue for using the money — making acquisitions — looks less likely given the regulatory backdrop, according to some investors. “The US government is going to take care of the M&A question by making it more difficult to do deals,” said Jim Tierney, a chief investment officer at AllianceBernstein. Along with growing maturing in the core business, that was likely to make the $25bn repurchase authorisation announced last week “the tip of the iceberg”, he said.

Facebook, with less than half the cash reserves, has also turned its thoughts to distributing more of its excess cash, heavily outspending Google last year on stock repurchases.

“These are going to become free cash flow machines with nowhere to spend their money except on buybacks,” said Mr Tierney.