Hi Joanne,

Thank you for your comments and questions, of course : ) I will try my best to answer your questions.

1) A perceived increase in share buybacks in a rising market ought to concern investors. Why? Because there is no way that if the share price keeps rising that the most recent share buybacks are executed with the same economics as older share buybacks; after all, the company is paying a higher price and for the same economic engine (i.e. the company). Furthermore, it is disconcerting to me that the market has certainly rewarded businesses with high amounts of stock buybacks by bidding up the share price. Yes, it makes sense from a mechanical point of view. But if a business's best idea about how to invest capital, and its highest and best use of that capital is not a great new product idea, but instead, is to pay a higher price for their shares than they did two years ago, well then I think you can make a case that the company is destroying capital. Ouch!

Next, because dividends are paid out of earnings you can think of the earnings yield (the inverse of the P/E) as being the maximum dividend yield that a company should pay. Now obviously they could borrow money in order to increase the dividend beyond earnings.

2) I am familiar with Andrew Lo's AMH. I tend not to think of securities prices as following a mathematical theory. The reason is because of the high degree of free will displayed by markets and by individuals' psychologies. Theories are best when they describe systems with low free will. The theories of physics are powerful because they describe systems with almost no free-will. Psychology, by contrast, has many different typologies describing many varied personality types and with different treatments for each. There is no overarching theory of psychology because of the high degree of free will displayed by people. Markets, to my mind, on this continuum I just described, are further into the free-will zone. So that Lo's AMH acknowledges that securities prices can be overvalued for periods of time is not so interesting to me. Last point on theories of market prices...they need to be able to take inputs and make meaningful predictions. That they describe phenomena is interesting, but not practically useful. Perhaps Lo would have an opinion about the markets relative to the equity risk premium, but my mind just does not use theories like EMH or AMH to try and understand.

Last point on this...in a comment above I showed my calculation for the equity risk premium at the current level. It is NOT negative based on that calculation. Instead I cautioned that it was negative previously and that the last time it was as low as this was just before the Great Recession.

Hope that helps!

Jason