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Stock Buybacks and the Wall Street Sharktank: “A Whole Lotta Stealin’ Goin’ On”
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Let’s say you lend your brother-in-law, Pauli, 5,000-bucks so he can get his fledgling construction business off-the-ground. Then, you find out a week later that ‘good-old Pauli’ has shot the wad playing the horses at Long-acres and buying cocktails for his loafer-friends at Matt’s Mad Dog tavern? Would you feel like you’d been ripped off?

Sure you would. But when some slick corporate fraudster pulls the same scam, no one even raises an eyebrow.

What am I talking about?

I’m talking about the way that corporate bosses are allowed to take the hard-earned money from Mom and Pop investors and divide it among their freeloading shareholder friends via stock buybacks. You see, buybacks have been driving the market higher for the better part of six years, and every year the amount of cash diverted into this swindle gets bigger and bigger. According to Research Affiliates:

“In 2013, S&P 500 companies….spent $521 billion on buybacks. In 2014 that amount rose to $634 billion and moved higher still to $696 billion when total repurchases by all publicly traded companies in the U.S. market are included.” (“Are Buybacks an Oasis or a Mirage?“, Research Affiliates)

And, here’s more from an older article at the Wall Street Journal:

“Last year, the corporations in the Russell 3000, a broad U.S. stock index, repurchased $567.6 billion worth of their own shares—a 21% increase over 2012, calculates Rob Leiphart, an analyst at Birinyi Associates, a research firm in Westport, Conn. That brings total buybacks since the beginning of 2005 to $4.21 trillion—or nearly one-fifth of the total value of all U.S. stocks today.” (“Will Stock Buybacks Bite Back?“, Wall Street Journal)

Whatever the exact figure may be, we’re talking serious money here, something in the neighborhood of a half trillion dollars per year. And it’s all being used for the sole purpose of jacking stock price so voracious CEOs and their shareholders can make a killing. Not one dime of this money is going into expanding operations, hiring more employees, Research and Development or improving productivity. The lone objective of this farce is to inflate stock prices to Hindenburg proportions in order to line the pockets of filthy-rich one percenters.

And that’s just the half of it. The part I’ve left out is the part about how much debt these corporations are loading onto their balance sheets in order to feather their own nests. Take a look at this from Bloomberg:

“It’s official, using proceeds from debt sales to send cash to stockholders has never been more popular.

Standard & Poor’s 500 Index companies listed buybacks or dividends among the use of proceeds in $58 billion of bond deals in the past three months, the most on record, according to data compiled by Bloomberg and Sundial Capital Research Inc. More than $460 billion in repurchases were announced during the first five months of 2015, on pace to top last year’s record.” (“Debt Gone Wild” – Debt Funded Stock Buybacks Soar“, Advisor Perspectives)

$58 billion here, $58 billion there. Pretty soon you’re talking real money.

So let’s do the math: $58 billion in three months translates into $232 billion per year, which means that a heckuva a lot of the money that’s being given back to shareholders is being borrowed from–you guessed it– Mom and Pop, the suckers who’ll be left holding the bag when the whole system goes bust again in the not-too-distant future.

And why have Mom and Pop been buying all these crappy corporate bonds that are just adding to executive compensation instead of building stronger companies for a brighter future??

Because of the damn Fed, that’s why. The Fed has been holding rates underwater for seven years to keep the money flowing to Wall Street and to force smalltime investors (who have been trying to scrape by on their withering retirements) to look for a higher return on their savings then they’re getting on their risk-free fixed-income investments. In other words, the Fed has put a gun to their heads and forced them back into the Wall Street sharktank.

It’s all a question of incentives, right? If you keep rates low enough, long enough, “they will come”….and get fleeced again for that matter. Which is exactly the way the system is designed to work. Low rates mean more pigs to the slaughter. Period. Now check this out from the Fiscal Times:

“Not only are investors willing to buy more debt, they’re also attaching fewer conditions. Rating service Moody’s tracks covenant quality, essentially a measure of standards that bond issuers must meet, and reported Thursday that the latest reading remains near record highs, which indicates weak restrictions.”

(“Why Corporate Debt Is Hitting Record Levels“, The Fiscal Times)

“Weak restrictions”, you say?

Well, that’s just great.

So, Mom and Pop got into bonds thinking, “I don’t trust stocks after the last crash, so I’ll load up on bonds cuz they’re safer”, right? Only now they see they’ve been led into a minefield where they might not get out in one piece. Some bond funds have already suspended redemptions, which means investors can’t withdraw their money. I’m dead serious. It’s like the Hotel California, “You can check out, but you can’t leave.” Not with your money at least. So you can kiss that retirement “Goodbye” and start filling out that job app for Taco Time now before the spot is taken by some other struggling graybeard.

Don’t you think companies should have to sign an oath to investors that they will NOT use their investment to divvy up among their shareholders? I do. And, besides, if a CEO doesn’t have a plan for reinvesting profits in his own business, then he shouldn’t be the CEO, right?

No one buys a bond thinking some corporate jerkoff is going to use the money to goose stock prices. That’s just pulling the wool over people’s eyes. Like I said earlier, no one in their right mind is going to lend brother-in-law Pauli 5K so he can blow it at the races or the tavern. Nor are they going to hand over their paltry retirement-savings to some shifty CEO who wants to use it to buy a bigger yacht or install a fountain at his palatial vacation retreat in the Hamptons. That’s not why people invest money.

This whole stock buyback-thing shouldn’t even be an issue, mainly because we used to have rules that prohibited the practice before the Deregulator in Chief, Ronald Reagan, took office and everything went to hell in a handbasket. Check it out:

“Prior to the Reagan era, executives avoided buybacks due to fears that they would be prosecuted for market manipulation. But under SEC Rule 10b-18, adopted in 1982, companies receive a “safe harbor” from market manipulation liability on stock buybacks if they adhere to four limitations.” (“SEC Admits It’s Not Monitoring Stock Buybacks to Prevent Market Manipulation“, Dave Dayen, Intercept)

Now, anything goes and the sky’s the limit. Wall Street basically tells its lackey Congressmen what they want and, BAM, Congress changes the rules like that. That’s basically how the system works.

As a result, Big Business keeps piling on more and more debt, creating more and more instability, and paving the way for another agonizing financial crisis.

Yes, I realize you’ve all heard that nonsense about “the strength of US corporations” and their “fortress balance sheets” that are bulging with $2 trillion in excess cash. Sorry to break the news to you, but it’s all baloney. Take a look at this from Bloomberg:

“Corporate leverage is now at its highest level in a decade, according to a new analysis from Goldman Sachs….

Years of low interest rates and eager investors have encouraged Corporate America to go on a shopping spree. On its list are share buybacks and dividend hikes to reward equity investors, as well as a series of merger and acquisition deals, all funded through a generous bond market. Since cash flow has not kept up with the boom in bond sales, the splurge has left Corporate America with its highest debt load in about 10 years, according to the bank…..

“The spectre of rising rates, potential global disinflation (dare we say ‘deflation’?), declining operating profits and wider credit spreads continues to create near-term consternation for weak balance sheet stocks,” the analysts conclude.” (“Goldman Sachs Says Corporate America Has Quietly Re-levered“, Bloomberg)

Talk about understatement! Corporate America didn’t go on a “shopping spree”. That’s ridiculous. They went on a six year debt-bender offloading zillions in bonds to credulous investors who’ll probably never see their money again. There’s no reason to dignify that sort of chicanery as a “shopping spree.”

And reread that last paragraph slowly and try to savor what the author is really saying. He’s saying that everything has changed; the Fed is taking its foot off the gas, earnings are shrinking, credit is tightening and the whole rickety infrastructure that keeps this Ponzi house of cards upright is about to collapse. Not today. Not tomorrow. But soon.

Which brings us to our final point, which is that there’s been no recovery. It’s all a big fraud. There was no restructuring of debt, no rebuilding of household wealth, no rebound in wages, incomes or employment. (excluding shitty-paying, part-time, service-sector jobs.) The whole lie has been predicated on a failed monetary policy that has created gigantic, system-devouring asset bubbles in stocks, bonds, corporate debt, derivatives, ETFs, REITs… you-name-it, it’s inflated. The Fed has created the same mess it created last time, and the time before that, and the time before that, and the time before that….

Anyway, you get the picture. What was that saying about “Old dogs and new tricks”?

That goes double for the Fed.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at [email protected].

(Republished from Counterpunch by permission of author or representative)
 
• Category: Economics • Tags: Federal Reserve, Wall Street 
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  1. The Fed has created the same mess it created last time, and the time before that, and the time before that, and the time before that….

    …and before the FED there were the recurrent “Panics” of the 19th Century and before that the Mississippi Bubble and the South Seas Bubble and the Tulip Mania… Wait a minute, I’m starting to see a pattern here.

    Could this have something to do with the nature of human beings?

    Naaahhhh! We all know there’s no such thing as human nature!

    Which brings us to our final point, which is that there’s been no recovery. It’s all a big fraud.

    True enough, but there’s a lot more than the recovery that’s a fraud. The whole socially engineered, risk free rate of return, unlimited growth, Happy Days are Here Again, Great Society v9.9 ad infinitum – ad nauseum is a fraud.

    And anybody who tells you they can fix it and make it work is a con artist looking for a mark.

  2. edNels [AKA "geoshmoe"] says:

    Mike Whitney, you are a favorite of mine, I quote from the top of the second page here to ask for a clarification in the language, because frankly, I don’t speak fluent business econ yet, but I think I’m starting to get it, and you are one who helps demystify.

    [”The lone objective of this farce is to inflate stock prices to Hindenburg proportions in order to line the pockets of filthy-rich one percenters.
    And that’s just the half of it. The part I’ve left out is
    [[‘ … the part about how much debt these corporations are loading onto their balance sheets in order to feather their own nests. …’]] ]

    Question: shouldn’t there be some delineation between corporations… and their (balance sheets), as in: feathering their nests.
    where corporations be the structure of the company, vs. the principals (CEO’s) and stockholders, who get paid from the scam?
    The corporations are getting hollowed out and stuck with the bill, so it’s not the corporations nest, it is more the phony management and tag along stock investors nest being feathered.

    This whole phenomenon seems to me to be in the rubric of How to destroy a country, and bring it down to a size to ”drown in a bathtub”…? kind of approach, and it’s way beyond quaint… (creative destruction!)

    • Replies: @Kiza
  3. Kiza says:
    @edNels

    Mike’s is a short form, yours is a longer description. You are absolutely right and more precise. By feathered nests Mike means the holiday homes of the CEOs in Hampton and escape pods on the farms in New Zealand or semi-inhabited Pacific Islands.

    When this thing blows up again, will we not read how the mug holding the last candle of the Fed chairman is shocked and surprised? Now, who would have expected that 1+1=2? A primary school child would understand that if you keep the national economy on the cheap (ZIRP) and plentiful (QE) supply of money for more than eight years, especially when CEOs are rewarded not on increases in profit or even earnings, then on increases in the stock prices, the cheap money junkies were going to overdose on debt and this was going to totally wreck the whole economy.

    The CEOs and their financial “wizard” CFOs have been replacing company equity with low cost debt/bonds. Then, how could the Fed even dream of increasing the interest rates back to a sustainable level of one or two percent? The US companies are producing less, not more, and even if they produced more there is nobody to buy because ordinary people have no money left. Now, if Fed increases the interest rates, the US companies will just fold, caught between higher interest bills and lower sales.

    The US economy is like a run-away train heading for a collapsed bridge. I give it a few years till The End. Unless there is a nuclear war before economic collapse, in which case it will be a different The End.

    • Replies: @edNels
  4. DanGood says:

    Mike, Mom and Pop investors and freeloading shareholder friends are one and the same, no?

    • Replies: @Brad Smith
  5. And having exchanged tons of debt for Mom & Pops’ hard earned assets, you can bet the next big “reform” will be a Debt Jubilee … to help the little guys burdened by debt, of course.

    • Replies: @another fred
    , @dc.sunsets
  6. @The Alarmist

    I don’t know about “next big”, but it is coming. The simple math dictates it when debt has so far outgrown the ability to service it. We are still in the phase where the Gov’t can print money and debts are rolled over with the pretense that they will be paid some time in the future. That cannot last forever.

    In addition to debts that are on the books, pension liabilities, many of which are unfunded, should be counted in the total debt load of the US.

    The real fracas will be over payments to foreign creditors. That’s when the system will break down and the world will divide into economic and trade blocs.

    • Replies: @Kiza
  7. War for Blair Mountain [AKA "Groovy Battle for Blair Mountain"] says:

    My POTUS campaign pledge and platform:

    If I…Groovy Battle for Blair Mountain…am elected POTUS..I will enthusiastically and joyfully implement a policy of rouding up all Hedge Fund CEOS, and their rocket scientist high frequency trading algorithmists, and take them out to an open field, and allow The Oppressed Native Born White American Working Class shove sharp wooden stakes up their filthy stinking arses…up through their wicked spinal-columns…out through their wicked mouths…..opened in a stark-raving-state-of terror!!!!!!!!!!

    Moreover, I Groovy Battle for Blair Mountain will make this a permanent National Holiday…a Picnic Day for the entire Native Born White American Family…Bring all the youngins…Bring corn-on-the-cob-lots of watermelons….burgers and hot dogs to barbecue…and laugh in a state-of-great joy at the cockroaches as they scream-in-a-girly boy high pitched-scream…around 125 decibels…in extreme terror!!!..YE HA!!!..YIPPY KYO..KYYA!!!!

    Groovy Man!!!!

  8. @another fred

    And anybody who tells you they can fix it and make it work is a con artist looking for a mark.

    True, but it misses the point.

    Booms and busts are a natural cycle. The better question is, what drives the boom, for the bust is simply baked into the cake by it?

    Mass psychology is the simple answer, but the details are far more interesting. The most significant booms are driven by an excess of credit, particularly of the non-self-liquidating variety.

    Borrowing (issuing IOU-dollars called bonds) to buy back stock is utterly non-self-liquidating. It adds nothing to the productive capacity of the firm. In fact, when executives issue debt to buy back stock it is an open admission that they have no productive use for more capital. They have no untapped markets or un-served demand for their products.

    Wow. Just wow.

    Stock buybacks using borrowed money is about as clear a signal as can be imagined that the US economy is in a rocket-ship-rally, still rising even as the fuel is entirely spent.

    Sadly, this has been the case for two decades, but reason and rationality do not govern stock prices.

    • Replies: @another fred
  9. Kiza says:
    @another fred

    In addition to debts that are on the books, pension liabilities, many of which are unfunded, should be counted in the total debt load of the US.

    The figure I saw a few years ago was that the US unfunded liabilities are around 225 trillion, they far exceed the straight debts. The City of Chicago already cannot pay the pension of its firemen and policemen, not to mention the City of Detroit.

    The real fracas will be over payments to foreign creditors. That’s when the system will break down and the world will divide into economic and trade blocs.

    But you are wrong that only the foreign creditors matter, all creditors matter, because the financial industry is the most integrated global industry. One big failure and there could be a financial failure avalanche, hitting the depositors of a little bank in Couderay Wisconsin. Everything rests on trust that a piece of green paper with some figures on it, printed by a private banking cartel called the Fed, can be exchanged for something of real value that somebody worked hard to produce. Some people will find out the meaning of trust the hard way when those figures on paper and inside computers disappear: poof!

    The whole financial system is surviving day-to-day, held together by rubber bands and sticky tape.

    Let me give you an example of the potential trouble ahead. Saudi Arabia has huge holdings of US debt, but it is running a monthly deficit of around $20 Billion due its wars in Syria and Yemen and a low oil price. SA has to sell this US debt to continue financing its wars. This is likely to severely limit the rolling over of the existing US debt and new debt issuance. Ditto China. The US debt market could even collapse.

    • Replies: @dc.sunsets
    , @another fred
  10. It’s always been about debt.

    I didn’t realize this, and it was a costly kind of ignorance.

    For 30 years interest rates relentlessly fell, which had several effects:
    1. bond holders got rich twice, once by getting paid interest and again by capital appreciation.
    2. borrowers could issue ever more debt but only pay the same borrowing expense.
    3. this led to the filling of a vast Bond Ocean.
    4. because debt is deemed wealth, this led to a vast increase in perceived wealth.
    5. this vast increase in perceived wealth had the same effect as a vast monetary inflation.
    6. prices for everything ran higher, but since staples didn’t keep up the perception of inflation was muted.

    So here we are today with vast wealth residing in the Bond Ocean, and the Bond Ocean’s wealth sloshes from stocks to real estate to commodities to stocks, then to real estate and commodities, etc., etc.

    A rising tide of asset inflation raises all boats, but does so unevenly, if not fitfully.

    The problem is that a credit bubble inflation like this occurs as a state of group-mind. People entered a maniacally optimistic Extraordinary Popular Delusion, a folie a plusiers, in 1995. Since then the flow of IOUs into the Bond Ocean turned deluge, and asset markets entered their serial bubble phase.

    The denouement for this is for the mass mind to exit its madness-shared-by-many. The effect will be for trust to drain from the bond market. Interest rates will reflect this.

    When the volume of existing bonds is small, rises in interest rates have a modest effect on the overall perception of wealth. When a Bond Ocean exists, small rises in interest rates cause vast reductions in total wealth as the capital value of bonds craters.

    Once this vicious cycle begins, credit inflation cannot be restarted until the Bond Ocean has evaporated back to a level the mass mind can trust. Any attempts to add credit (i.e., central bank QE) might add a $1 billion in new debt but evaporate $500 billion off the top of the Bond Ocean. The Fed cannot create net credit in that environment, and it can’t literally print banknotes to offset the evaporation without reflexing to issuing $1,000, $1,000,000 or even $1,000,000,000 banknotes. There isn’t enough paper available to run the US economy by backing IOU’s with physical cash at $100/note.

    Stocks can rise and fall. Commodities can rise and fall. All of it can rise and fall. What matters is the bond market. Unless trees grow to the sky, the time will come when collective trust in all those IOU’s erodes markedly. Then all asset markets will engage to the downside and all will fall until the shared belief in the future wealth of all those Promissory Notes reaches nadir.

    Stock buybacks are simply signs of stocks near apogee (corporate executives tend to Buy High.) The Bond Ocean filled further than any rational observer might have imagined. At some point, however, visions of sugarplums must stop dancing in people’s heads.

    Then Charles Mackay should be reanimated so he can add an entirely new section to his famous book; surely these last 50 years (beginning with deleting silver from US coinage) qualify as the greatest epoch ever of monetary, financial and economy folly.

    You read it here first: When this happens, the great cry will be that “we’re short of money!” When credit creation cannot stem the evaporation of monetary wealth and those in authority become desperate (and they will), the “fix” will eventually be to literally print banknotes to reflate the economy. You’ll know the S is heading for the Fan when “they” begin to print banknotes of ever-larger denomination (at first, to settle accounts between banks and other financial institutions.)

  11. @Kiza

    There is no way to objectively measure the total amount of dollar-based debt in the world.

    What would be included? Sure, Treasuries, muni’s and corporates, but what about all the leverage found on the CBOE or CME? How about off-balance-sheet debts, special purpose vehicles and the notional value of all untraded derivatives? How about including the unfunded obligations of social security, medicaid, medicare, etc.?

    It could be over $1.5 quadrillion dollars, a figure orders of magnitude larger than anything the human mind can begin to conceive.

    It is for this reason that total debt is a territory for which no map even exists. People today live at the foot of this smoking Mount Vesuvius and ignore the occasional (and increasingly frequent) tremor because, hey, the mountain has always been there and always smoked, even belching a little ash on occasion.

    The volcano metaphor could not be more apt. This issue is sooooooooo much larger than the potential for the collapse of just the US debt market. The USA has doubled-down on a losing bet so often these past 50 years that people don’t even realize the bottomless pit next to them as they live like high-rollers and put another bet on their tab at the craps table.

    I watch people live like inveterate gamblers. No matter how much money they have, they spend more. People with large incomes live paycheck-to-paycheck and people who WORK in financial occupations carry huge balances on revolving credit cards.

    Credit Crack-whore doesn’t begin to describe them.

  12. @dc.sunsets

    True, but it misses the point.

    Booms and busts are a natural cycle.

    I said:

    Wait a minute, I’m starting to see a pattern here.

    Could this have something to do with the nature of human beings?

    Naaahhhh! We all know there’s no such thing as human nature!

    Did you need a “/sarc” tag?

    Mass psychology is the simple answer,

    Sort of. Human personalities and abilities lie on bell curves (plural). Those with higher risk tolerance* and ambition get in on the earlier part of the cycle and, as and if they are successful, by example attract others seeking a profit. Those drawn in are, on average, willing to go for lower rewards in exchange for lower risk. Eventually the “greater fools” wind up holding the bag when the rewards are based on pure speculation and more money is not available to keep the bubble inflated.

    * I acknowledge that risk tolerance is also mediated by available resources. A man with millions has much less at risk in a $100,000 venture than a man who has mortgaged his house.

    • Replies: @another fred
    , @dc.sunsets
  13. @The Alarmist

    The “rich” are those who own most of that debt.

    It is unthinkable that people who count a vast amount of their net worth from bonds (defined broadly) would support a debt jubilee.

    There is no deliberative political solution to the predicament now in place.
    This plane will fly until it runs out of (collective optimism) fuel, then it will demonstrate the glide characteristics of a brick.

    The only interesting conjecture (and it’s all conjecture) is what exact forms will the debacle assume and what details will matter? I could spend all week debating and wondering about those answers with reasonably bright people.

    • Replies: @The Alarmist
  14. @Kiza

    But you are wrong that only the foreign creditors matter

    By “real fracas” I am referring to the wars that typically follow busts, not the bust itself. In the present case I believe that war will be preceded by a breakdown in international “cooperation,” such as it is.

    Michael Hudson had a recent article posted here about the shenanigans at the IMF that is germane to the subject.

    http://www.unz.com/mhudson/the-imf-changes-its-rules-to-isolate-china-and-russia/

  15. @another fred

    Those drawn in are, on average, willing to go for lower rewards in exchange for lower risk.

    That should be “lower perceived risk.”

  16. Rehmat says:

    Come on Mr. Whitney – don’t you know Wall Street is controlled by your Jewish/Zionist masters?

    In April 2015, Navinder Singh Sarao, a London-based small trader became a victim of the Wall Street & Rothschild empire. He was arrested and accused of being behind the 2010 Flash Crash by practicing the so-called ‘high frequency trading (HFT)’. The HFT is another trick practiced by the Wall Street vultures to rob ordinary investors especially the pensioners in the West.

    In 2013, a study conducted by professor Terrence Hendershott (University of California, Berkeley) showed that billions of dollars are going from unwitting investors into the pockets of high-speed trading firms.

    So, why Sarao is being criminalized for something which is practiced by big banking institutions? Simply, because he is an independent trader and doesn’t contribute his profit to world’s Shylocks, a forbidden word, for which US vice-president Joe Biden was slapped for using it by the powerful Organized Jewry last year. Therefore, Sarao must be eliminated.

    Another old victim of the Shylocks was Pakistani banker Agha Hassan Abedi (1922-1995), who started a small Islamic banking institution in London which grew-up into BCCI, an international banking ‘monster’, threatening the Bank of America and the Wall Street within a span of two decades – and had to be eliminated. BCCI was accused of laundering drug money, which every large American bank does. BCCI was declared a terrorist-supporting organization by the Jewish Lobby; its operation closed in the US and the rest of Zionist-controlled western nations. Agha Abedi escaped ‘American Justice’ by returning to his native Pakistan, which refused to extradite his famous son to an Israeli colony.

    http://rehmat1.com/2015/04/27/navinder-singh-you-cant-beat-the-wall-street/

  17. @another fred

    Sorry, I thought it was obvious I was agreeing with you. I misspoke.

    Psychologists have reproduced boom-bust cycles in laboratory experiments using groups of people. It’s innate, as explained by Robert Prechter, Jr. in his Wave Principle of Human Social Behavior (and at http://www.socionomics.net).

  18. It’s a messed up situation, but I don’t see how you blame companies for it.

    The Fed is doing this to private equity. Companies have no power to control the interest rate, but they are good at arithmetic. The numbers say that corporate bond issues are so cheap to do that it makes sense to do it. If people are willing to loan you gobs of cash at a 30 year term with an APR of 2%, and you can use the money to drive a 3% return, then as an officer of the company you have a fiduciary responsibility to borrow that money. That’s their job, and as a shareholder I expect to see the officers doing that. Similarly, if you are a CEO and you think your stock price is undervalued, and people are willing to lend you cheap money, then it makes a lot of sense to buy the stock! It’s a way to realize a return for your stakeholders.

    • Replies: @CanSpeccy
  19. @another fred

    ” jacking stock price so voracious CEOs and their shareholders can make a killing. ”

    AND get their bonuses.

  20. CanSpeccy says: • Website
    @Jewish Conservative Race Realist

    If people are willing to loan you gobs of cash at a 30 year term with an APR of 2%, and you can use the money to drive a 3% return, then as an officer of the company you have a fiduciary responsibility to borrow that money.

    Yeah, but doesn’t that officer of the company have a fiduciary responsibility to think about how he will repay the money if interest rates should rise?

    In that event, his 3% return may soon dip beyond zero, in which case his share price will slump also. So how’s he going to repay the debt? By issuing shares at below the price he bought them, or what?

  21. War for Blair Mountain [AKA "Groovy Battle for Blair Mountain"] says:

    Does that microscopic Ito-Calculus jazz really describe the fundamental continuum of the Stock Mark in the way that fundamental physics laws explain and describe reality. Apparently not if you remember the 2010 microscopic Flash Crash.

    Hedge Funds with their algorithmic-high frequency black magic structure-control-frame the various “fluid flow” patterns and phases of the Stock Market. That’s the starting point. Then the Hedge Fund MEGA-CEOs who created and are masters of this “it-from-bits”(famous phrase of the late great physicist John Wheeler) Universe they gave life to proclaimed in 1986 in a Demigod pronouncement …IN THE BEGINNING LET THERE BE OUR BITS TO OUR ITS” ….WE GIVE YOU LIQUIDITY AND EFFICIENT RESOURCE ALLOCATION!!!!!

    I say:Robert Mercer…Renaissance Technology…you own the Politicians who wage a scorched-earth-wage-slave-labor market policy against The Historic Native Born White American Working Class(even against Mercer’s own wetback Hispanic slaves on his plantation in Setauket). I didn’t need advanced hidden-Markov Chains to figure out the obviousness of the game you cockroaches are playing…It’s full-blown-out-in-the open!!!

  22. robt says:

    Mr Whitney missed half the picture or chose to ignore it. The stock buybacks (which by the way I think should be illegal) are just another way to loot the treasury by mopping up option shares, instead of management writing a check to themselves, which would be illegal. The cash to do this is not all covered by loans, although the loans and bond issues are a recent phenomenon – it’s cash flow and profit, profit that is the shareholders’ money and which should be distributed by paying the highest dividends possible after covering all the expenses of development and maintaining the investment needed to sustain the business. In case it’s been forgotten, that’s why shares were sold in companies.
    Instead, the managements of companies have granted themselves and other employees options, often at ridiculously low strike prices, then exercise the options, and the new shares are then bought back by the company with treasury money – your money if you’re a shareholder – thus not inflating the share issue.
    The standard line about ‘returning value to shareholders’ is nonsense – how does buying back your shares with your own (the shareholders’) money, possibly leaving the shareholder with no shares ‘return value’? If a shareholder wants to sell his shares, he could do so at any time. The other line is that somehow the market has undervalued the shares. More nonsense. If the company wants to see a higher share price even though it hasn’t earned it, they could just do a reverse split – and it’s free. Historically, most companies with a share buyback program end up with their share price lower than when the buyback program began, after wasting billions of dollars.
    BTW, from the above article, the dumb quote of the day, from Bloomberg, may be:
    “It’s official, using proceeds from debt sales to send cash to stockholders has never been more popular.”
    Companies don’t have to buy in the market for people to sell their shares. And they’re not ‘sending’ cash to shareholders – SH are selling their shares.

  23. @DanGood

    Not if one party gets out while the other is stuck holding the bag.

  24. edNels [AKA "geoshmoe"] says:
    @Kiza

    Beyond stocks buybacks.

    Trillions of dollars given to the cronies to go buy up stuff. Stuff like the commons, or things owned by municipalities and government. “Go PRIVATIZE! young man”… 360.

    Easy money policy, 0% money. Is war on all but the recipients of ZIRP. They are encouraged to buy up everything they can. On the list would be a whole lot of things that were legacy to the people, things we took for granted, public facilities, libraries, parks post offices, public utilities, and waste sites, toll bridges/ roads, water depts. and holdings. I don’t know where to start. And corporations buying own stocks back, to pay key folks. Foreign registered corporations (owned by… who?… ) are picking up things like municipal parking meters, and…

    The raiding opportunity that was under Yeltsin, has come home to roost/loot. it is a time to “make hay” before the Sun comes out….!!

    When the greedy ones have had their feed, leaving the country in a condition, what is left, will be rendered pacified and ripe for the next wave of… “total redevelopment”, like in the plundered mid east countries, or, like in so many inner cites at home here. That’s been going on for a while.

    Everything seems to come out of playbook of somekind.

    • Replies: @Kiza
  25. Kiza says:
    @edNels

    Never think that they will not use in the US what they used overseas first. In fact, the foreign wars are more often then not, just the testing ground for developing domestic control techniques. For example, they used the drones overseas, to perfect them for using at home. They used the crowd control techniques in Iraq, which they now use at home.

  26. @dc.sunsets

    Ultra-low rates are driving pension funds to take on ever more debt securities to match the liabilty exposure. At some point Congress will get around to shovelling Govvie debt into everyones’ 401k and IRA accounts to “protect” them from the brutal markets. To your earlier point about the rich holding the debt, they have been off-loading their debt for real or hard assets, and the plebs have been turned into renter serfs holding the bag with what was left of their savings now sitting in debt securities they hope will give some yield because, at least in many places, you essentially pay to hold cash.

    • Replies: @The Alarmist
  27. Wally says: • Website
    @another fred

    But private investors, banks, etc. making bad investment decisions with their money or the money that people have allowed them to invest is quite different from the Fed using taxpayers’ money without the taxpayers’ permission for the benefit of a select few.

    One is a free market decision to take risks for potential gain, the other is not.

    We’ve reached the point where the massive US govt. privatizes profits and socializes losses.

    • Replies: @another fred
  28. @The Alarmist

    Oh, one more thing. The laws protecting depositors have been re-written so that when jubilee does come … and it will … the Fed, which has been eagerly snapping up a lot of debt itself will pass the hit not to its member banks and bankers, but instead to the few Moms & Pops who do still have savings in the mother of all bail-ins. The “rich” like the landed gentry of the last days of Rome have already bought theirbforts and guards, and the debt serfs will be returned to working their land, ending this miserable experiment with freedom that first reared its ugly head with the black death of the middle ages. Took them 800 years, but they see the end game.

  29. @Wally

    We’ve reached the point where the massive US govt. privatizes profits and socializes losses.

    A valid point. Unfortunately, I think they will continue to be successful in this endeavor for quite a while yet.

    I really don’t know how it’s going to shake out when the “Emergency” is declared as far as whose side of the ledger the losses will ultimately be assigned, but war will eventually “rebalance” things.

  30. The “rich” like the landed gentry of the last days of Rome have already bought their forts and guards,

    There are a few other folks, a different 1%, who may not be “rich” but have their few acres they intend to defend alongside their families and neighbors. I have an idea they will be a significant factor WTSHTF.

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