
US corporations announced $437B of buybacks in Q2 2018, doubling previous record - kaycebasques
https://money.cnn.com/2018/07/10/investing/stock-buybacks-record-tax-cuts/index.html
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akshayB
Buybacks generally benefit top 1% or the C-level and make them richer. The
impact on 401k of common is just a gain in few percentages or maybe some extra
dividend. Also there is a conflict of interest CEO's are paid in stock and the
only way in which they ensure they make more money is to take actions which
boost the value of company stock.

Market cap and higher the stock values also can be used in so many different
ways, like acquisitions and also as a tool to leverage as an equity against
which money can be borrowed.

~~~
astrodust
It's also a sign the companies have too much money and not enough
opportunities to spend it on.

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akshayB
Companies hoard cash because they want to ensure continuity.

I loose respect for companies which go an extra mile to exploit loopholes. All
companies do it. For example - Apple borrows money to pay dividend to stock
owners even though they have unbelievable amount of money. But somehow the
messed up US tax code this action sounds logical.

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astrodust
That's just what you get when you hire accountants that know what they're
doing and are obligated to pursue the path which results in the lowest amount
of tax paid as permitted by law.

If Apple didn't do this they'd get sued. Activist shareholders would be all
over them in an instant.

That puts them in a tough spot. I'm sure Apple would rather that loophole was
closed, it's really absurd that they have to do all this just to make it work,
but there's nothing they can do about it.

The problem here is that the US tax system is utterly bizarre.

~~~
fjsolwmv
It's an utter myth that a company can be punished by its shareholder's for
paying too much tax, just as it's a myth that they could be punished for
letting their employees due paid volunteer work.

~~~
astrodust
Tell that to Carl Icahn.

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mdorazio
To me, the increasing buyback trend is an indicator that the US economy is
effectively nearing a peak and the underlying economic model that depends on
infinite growth is going to need rework in the not too distant future.
Companies generally do buybacks when they don't have any productive use of
their profits that would contribute to fundamentals (and thus boost share
price the old-fashioned way). Companies are piling up profits and then
realizing that it's easier to boost share price by just buying their own
shares than by investing in more long-term things.

As per-worker productivity increases and wages continue to see only modest
gains this trend is likely to continue. That's worrying for the vast majority
of Americans who aren't executives or shareholders.

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Retric
Buybacks have significant tax advantages and are little different from
dividends. Really, the entire point of companies is to give shareholders
money, so buybacks don't say much about the wider economy.

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germinalphrase
It is certainly _one_ point of companies.

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Carioca
It's a very common point of view, famously championed by Milton Friedman[1]

1:
[https://en.wikipedia.org/wiki/Friedman_doctrine](https://en.wikipedia.org/wiki/Friedman_doctrine)

~~~
vannevar
More like a common misconception. If shares were distributed broadly,
Friedman's view might make sense, and perhaps he was assuming that overall, it
is. But stock ownership is not broad, it is exceedingly narrow---a tiny
fraction of the population holds a wildly disproportionate share. So if
corporations, which impact virtually everyone's lives, truly owe a duty only
to their shareholders, it would be deeply autocratic. Friedman is simply
wrong: all corporations are chartered by government, and consequently have a
duty to promote the general welfare, above and beyond their duty to enrich
their shareholders.

~~~
Retric
In practice companies don't act that way.

Further, organizations can be for profit, non profit, or not for profit each
of those are distinct things. So what distinguishes companies from other
organizations is simply the profit motive, _otherwise they would be something
else._

That said, they can have other motives on top of profit seeking and need not
seek profit over all other goals.

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vannevar
It's not a question of motive, but of duty. Corporations, as creations of
democratic government and not purely private property, should be held to a
higher standard of public responsibility than individuals. Regardless of
motive, corporations should not be _permitted_ to put profit ahead of the
public interest.

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berbec
Good thing companies are putting that big tax cut into hiring more worker and
increasing wages. Otherwise, it would just be a big plus for corporate bottom
lines and yet again invalidate trickle down, voodoo economics.

~~~
clumsysmurf
God forbid!

Goldman Sachs : "every percentage-point increase in labor-cost inflation will
drag down earnings of companies in the S&P 500 by 0.8%"

[https://www.wsj.com/articles/wage-gains-threaten-to-
squeeze-...](https://www.wsj.com/articles/wage-gains-threaten-to-squeeze-
retail-industrial-profits-1531134000)

~~~
ljw1001
I'm not an economist, but doesn't that make people .2% better off on average?
It's almost like GS is interested in something other than the common good. :)

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maerF0x0
Stock buybacks disproportionately benefit option holders and executives.
That's why they're doing it. They're robbing shareholders of future growth or
returned cash.

[https://www.reuters.com/investigates/special-report/usa-
buyb...](https://www.reuters.com/investigates/special-report/usa-buybacks-
pay/)

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cs702
Quoting Steve Perlstein of the Washington Post, who recently wrote:

 _Let’s recall those heady days of 2006 when home prices were rising 10, 15,
even 20 percent a year, allowing millions of homeowners to refinance mortgages
and collectively take out more than $300 billion in cash from the increased
value of their properties. Some spent the money on furniture, appliances, cars
and vacations, adding fuel to an already roaring economy. Others reinvested it
in the already booming real estate and stock markets. When it finally occurred
to everyone that those houses and those stocks weren’t really worth what the
­debt-fueled market said they were, markets crashed, banks flirted with
insolvency, and the economy sank into a deep global recession.

Now, 12 years later, it’s happening again. This time, however, it’s not
households using cheap debt to take cash out of their overvalued homes.
Rather, it is giant corporations using cheap debt — and a one-time tax
windfall — to take cash from their balance sheets and send it to shareholders
in the form of increased dividends and, in particular, stock buybacks. As
before, the cash-outs are helping to drive debt — corporate debt — to record
levels. As before, they are adding a short-term sugar high to an already
booming economy. And once again, they are diverting capital from productive
long-term investment to further inflate a financial bubble — this one in
corporate stocks and bonds — that, when it bursts, will send the economy into
another recession._

Go read the whole piece. Whether you agree or not, it will make you think:

[https://www.washingtonpost.com/business/economy/beware-
the-m...](https://www.washingtonpost.com/business/economy/beware-the-mother-
of-all-credit-
bubbles/2018/06/08/940f467c-69af-11e8-9e38-24e693b38637_story.html)

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adrr
Wouldn't it make more sense to issue more stock when the stock is at all time
high and buyback when the stock is low like during a recession?

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jannes
That would dilute the share price when it's high and boost it when it's low.
Reaching some kind of equilibrium in the middle...

What would be the point of that? A stock buyback is not an investment, but
rather a transfer of wealth that's not taxed very much.

~~~
adrr
For a company, it would be obtaining capital cheaply on a per share basis.
Most of these companies have huge debt. Take for example, Amgen which is
spending $10 billion to buy back shares. They have over 31 billion in debt or
which is $10 billion is short term.

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DesiLurker
why do these buybacks happen (seemingly) closer to market top rather than
bottom? thats just reflecting a common theme across market over last year or
so. seems like a very dumb way to utilize cash on hand. is there a more
structural reason for this?

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cmer
It's all about jacking up the stock price for shareholders. Unfortunately.

~~~
simonsarris
Unfortunately? Shareholders buy shares for two reasons:

1\. The share price may go up

2\. The dividends pay out

These have been the reasons for buying shares since shares of the Dutch East
India company was chartered. If neither of these ever happened, there would be
no shares purchased.

A buyback is just a bonus instead of a salary.

You could make the criticism that a company having nothing _better_ to do with
its money is bad, and I agree, but in the interim paying it out as a bonus is
a great way to reward shareholders for holding. It's also better than a
dividend in case next year the company does find something better to invest
the money in, because investors really don't like when companies decrease
dividends.

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southphillyman
A lot of publications predicted this exact scenario as the tax cuts where
being sold as a job/wage booster.

What boggles my mind is how so many people vote "for jobs" promised by a
particular party, get shafted, then go right back to the same party next
election cycle and eat up the same rhetoric about job creation in exchange for
votes.

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startupfounder
This is all about price to value.

Price < Value

This is very interesting and shows that there is an amazing amount of cheap
cash available that is just piling up. Spending that cash on buybacks
increases the value of the outstanding stock that existing shareholders have
and then supply goes down, price goes up and the stock price goes up.

Dumb investors.

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bb2018
I'm always a bit unclear on how stock buybacks get reported so badly, though I
suppose it is in the complexity of the transaction. If that $437B was in
dividends I doubt anyone would think twice about it, yet that is in essence
what they are.

~~~
maerF0x0
Except they're not. Buybacks increase the share price, that means leveraged
investments (such as options) have a disproportionate increase in value.

~~~
bb2018
Sure - but is anyone complaining that companies are getting rich off options?

Buybacks increase the share price and that is why board of directors prefer
them over dividends (since their bonuses may be tied to them) but this is
simply an aligning of preferences. If I own a company I want it's value to go
up.

If I could choose between my $100 stock going to $110 or my $100 going to $105
with a $5 dividend I'd choose the first since it is more tax efficient.

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AtlasBarfed
Buybacks are almost solely to artificially trigger stock option targets for
CEOs, right? Otherwise that is money that should be paid out as a dividend or
reinvested into operations and research.

~~~
koolba
> Buybacks are almost solely to artificially trigger stock option targets for
> CEOs, right? Otherwise that is money that should be paid out as a dividend
> or reinvested into operations and research.

No buybacks provide a potential tax advantage for investors. Dividends have
tax consequences in the year that they're received. Buybacks lift the price of
the stock by an equivalent amount but do not force the investor to realize the
gains so they can defer the taxes to a later date.

~~~
kaycebasques
> so they can defer the taxes to a later date.

This assumes that the share price has maintained that elevated level at a
later date.

Ideally, you want to cash out on some long-term positions right around the
time of the buybacks. The buybacks have raised the share price, but you’re
only paying long-term capital gains taxes, which used to be capped at (I
think) 15% for all investors, regardless of income bracket.

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JohnTHaller
Wait... the majority of the corporate tax cuts wound up going to the 1% and
not to create new jobs? If I had pearls, I'd be clutching them.

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forapurpose
A related analysis of the economics of the 'Buyback Economy', from about a
month ago:

[https://news.ycombinator.com/item?id=17296102](https://news.ycombinator.com/item?id=17296102)

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Analemma_
Meanwhile, in March real wages fell 0.1% despite low unemployment:
[https://twitter.com/erikbryn/status/1016667480771780610](https://twitter.com/erikbryn/status/1016667480771780610)

Three cheers for the Trump tax cuts that we were promised would boost wages.
How much did we add to the deficit for this crap?

~~~
prolikewh0a
Anyone who thought the working class would benefit in any way from these tax
cuts was delusional. Profit is almost never seen by the creators (workers) of
the profit in this current system.

~~~
craftyguy
> Anyone who thought the working class would benefit in any way from these tax
> cuts was delusional.

Sure, but the 'anyone' includes a large (though not majority) portion of the
US voting population. Now what?

~~~
astrodust
A large but not majority portion of the US voting population can't find
America on a map. Now what?

~~~
craftyguy
So we should accept that a large but not majority portion of the US voting
population is relatively uneducated? Or do something about it? I fail to see
how your comment is making a different point than mine, maybe it's not?

~~~
astrodust
I'm just saying we need to accept that a concerningly large portion of the US
voting population has no clue, no understanding at all, and further, they
don't care. They just vote for representatives of their tribe.

Until there's a way to disrupt that, to break up this tribe into smaller, less
significant groups, this is how things are going to be.

It's not that they're _relatively_ uneducated, but that they're _negatively_
uneducated: viewers of Fox News know less about world events than people who
don't watch any news at all.

~~~
craftyguy
Well said. I used the term 'relatively' because most(?) of them can at least
turn on fox news, whereas 70 years ago very few would be able to operate a
modern TV to get at fox news without at least 30 seconds of being taught how.

~~~
astrodust
Seventy years ago things like Fox News didn't exist. Although various news
stations had their bias, it wasn't as overt as what Fox does with _crafting_
their narratives and painting every story with their brush.

Now you can exist in a bubble of Rush Libaugh, Alex Jones, Fox News and other
extreme right-wing publications and find yourself utterly isolated from
anything resembling objective truth or actual journalism. In that bubble you
won't know up from down, you'll just cheer for your "team" to win.

~~~
prolikewh0a
>Seventy years ago things like Fox News didn't exist.

There was also much more variety, but since then most of the newspapers and
news networks have been bought up by a relatively small amount of companies.
Clear Channel was allowed to own thousands of radio stations.

[0] [http://www.businessinsider.com/these-6-corporations-
control-...](http://www.businessinsider.com/these-6-corporations-
control-90-of-the-media-in-america-2012-6)

~~~
astrodust
Fast forward to a few years from now when six becomes three, and then three
becomes two.

Or one.

