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The 4.6 Trillion dollar driver of the Stock Market Bubble is Toast for 2020

Tom Paine 1949

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This is not a pro-Democratic or pro-Republican post. It is a discussion of the what the controversial U.S. corporate practice of "Stock Buybacks" has meant, and why it will now be abandoned. The structural problems of our American style of corporate capitalism are many, and stock buybacks are only one corrupting and distorting aspect of our system's poor functioning, at least according to Wolf Richter, a disenchanted ex-trader well informed about the inner workings of the Fed and our financial system. I have learned a lot via his columns of late. He does not give trade advice, but is well respected and often quoted. He did short the market for the first time in early January, even before the Covid-19 crisis hit, because he felt the "Everything Bubble" was unsustainable. Here are very short quotes from his most recent column, which also has explanatory graphs and short historical summaries:

"Even after the bottom is perceived to be in, 'buybacks may be slow to come back' as companies struggle for cash amid potential government restrictions on buybacks and their dismal public image: S&P Dow Jones Indices.

"So the biggest buyer in the stock market, the one that never sells and only buys, the relentless bid that wants to buy high to drive the share price even higher, well, this relentless mega-buyer that blew $1.5 trillion over the past two years buying the shares of the largest companies in the S&P 500 got burned and, now screaming in pain, jumped away from the market at the worst possible moment.

 
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Tom Paine 1949

Tom Paine 1949

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Are one of your “two ways” goosing the value of already overvalued stocks via stock buy backs so that corrupt execs can quickly sell their stock options?

Unlike dividends, company stock buybacks return no value to investors unless and until they sell their shares, but they burn through crucial company reserves and distort executive goals. Our system even encourages companies to take on debt for such once illegal manipulations. Buybacks have weakened companies, and poor managements (like Boeing) which use them extensively deserve to be replaced through normal bankruptcy proceedings, not subsidized by the government and Fed.

Your homilies are not addressed to concrete modern problems caused by using company profits to manipulate share values, nor to the general problem of crony capitalism.
 
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Toddsterpatriot

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Are one of your “two ways” goosing the value of already overvalued stocks via stock buy backs so that corrupt execs can quickly sell their stock options?

Unlike dividends, company stock buybacks return no value to investors unless and until they sell their shares, but they burn through crucial company reserves and distort executive goals. Our system even encourages companies to take on debt for such once illegal manipulations. Buybacks have weakened companies, and poor managements (like Boeing) which use them extensively deserve to be replaced through normal bankruptcy proceedings, not subsidized by the government and Fed. Buybacks distort management goals. Your homilies are not addressed to the issue of crony capitalism at all.
Are one of your “two ways” goosing the value of already overvalued stocks via stock buy backs

If your stocks are overvalued you should definitely sell them

so that corrupt execs can quickly sell their stock options?

Why did executive stock options become such a big deal?
I wonder if you know?

but they burn through crucial company reserves and distort executive goals.

What should a company do when it accumulates more reserves than needed?
Empire building?
 
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Tom Paine 1949

Tom Paine 1949

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Share buybacks grew to roughly 3/5 of net new investment in the market by 2018. They were essentially illegal before 1983. They have exploded since 2008.

You yourself mentioned one obvious answer to your second question — dividends. Others involve reinvesting in the company and its long-term needs — research, technology, training workers and paying them better, investing in main supplier’s health and logistics, expansion or purchase of other companies.

Are you completely blind to the dangers of “moral hazard” and corruption in our largest banks, on Wall Street and in corporate suites?
 
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Toddsterpatriot

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Share buybacks grew to roughly 3/5 of net new investment in the market by 2018. They were essentially illegal before 1983. They have exploded since 2008.

You yourself mentioned one obvious answer to your second question — dividends. Others involve reinvesting in the company and its long-term needs — research, technology, training workers and paying them better, investing in main supplier’s health and logistics, expansion or purchase of other companies.

Are you completely blind to the dangers of “moral hazard” and corruption in our largest banks, on Wall Street and in corporate suites?

You yourself mentioned one obvious answer to your second question — dividends.


I sure did. If they ended the double taxation of dividends, corporations would be more likely to return money to investors that way.

You never answered my question about stock options...…...

Are you completely blind to the dangers of “moral hazard” and corruption in our largest banks, on Wall Street and in corporate suites?

Nope.

Are you completely blind to the dangers of “moral hazard” and corruption in our federal and state governments?
 
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Tom Paine 1949

Tom Paine 1949

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“Nope” you say. But you see no conflict of interest in executives who are compensated in stock options spending billions of dollars of company money to goose up the value of already very “expensive” shares they just happen to be selling.

Why would you even ask your question about moral hazard in government? It is unrelated to share buybacks — the topic of this thread — except that I denounce the bought off politicians who pass government policies that encourage crony capitalism, whereas you apparently support them!
 
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Toddsterpatriot

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“Nope” you say. But you see no conflict of interest in executives who are compensated in stock options spending billions of dollars of company money to goose up the value of already very “expensive” shares they just happen to be selling.

Why would you even ask your question about moral hazard in government? It is unrelated to share buybacks — the topic of this thread — except that I denounce the bought off politicians who pass government policies that encourage crony capitalism, whereas you apparently support them!
But you see no conflict of interest in executives who are compensated in stock options

Conflict?

Did you ever say why executive stock options become such a big deal?

Why would you even ask your question about moral hazard in government?

Why would you ignore moral hazard in government?
 
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Tom Paine 1949

Tom Paine 1949

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This is getting boring. It seems to me you are playing games and do not want to discuss what makes share buybacks so controversial today among serious students of Wall Street and American-style capitalism. Such discussions usually resolve around whether they are detrimental to modern corporate governance and free and fair markets. You raise completely unrelated questions and expect me to waste time answering them. Since nobody else is participating or seems interested, I'm finished here. You may have the last word ...
 

Toddsterpatriot

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This is getting boring. It seems to me you are playing games and do not want to discuss what makes share buybacks so controversial today among serious students of Wall Street and American-style capitalism. Such discussions usually resolve around whether they are detrimental to modern corporate governance and free and fair markets. You raise completely unrelated questions and expect me to waste time answering them. Since nobody else is participating or seems interested, I'm finished here. You may have the last word ...
Did you ever say why executive stock options become such a big deal?

You can admit you don't know.

I'll add it to the list.
 
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Tom Paine 1949

Tom Paine 1949

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Another reason I won’t discuss further with you
You can’t even recognize that I’ve already responded ...
 

Toddsterpatriot

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Another reason I won’t discuss further with you
You can’t even recognize that I’ve already responded ...
Moron, Bill Clinton decided corporations shouldn't pay their execs so much, so he made cash salary above $1 million non-deductible. That's when corporations really started using stock options.

Do you get it yet?

This "big problem" that you're whining about was caused by a liberal President "fixing" a problem.

As far as conflict, why is it a conflict between shareholders wanting a higher stock price and an officer wanting a higher stock price?

You should probably run away now. LOL!
 
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Tom Paine 1949

Tom Paine 1949

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Another reason I won't discuss with you ...
You only really want to insult others and push partisan politics ...
 
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Tom Paine 1949

Tom Paine 1949

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Well ... don't say I didn't predict it!

Now even President Donald Trump has come out opposing stock buybacks by any company receiving loans from the new 2.2 trillion dollar recovery legislation. Of course opposition to corporate stock buybacks was raised for years by "democratic socialist" Bernie Sanders and "capitalist to my bones" Elizabeth Warren. Such manipulation of stock prices was illegal before 1983.

"Share buybacks" mainly serve as a convenient way to inflate share values to increase benefits to CEOs and others who receive stock options. They also tend to incinerate corporate profits and distort and corrupt management goals so that executives ignore long-term corporate interests.

Of course the struggle to make such destructive manipulation once again permanently illegal remains. Corporate Republicans (and Democrats) have defended stock buybacks and sold the idea to the public tenaciously, but now that even Trump has moved temporarily against them in this emergency situation, these corrupt executives are gritting their teeth. They will certainly counterattack whenever (if ever) the economy improves.

Still, it gives me great satisfaction to see the squirming of corrupt "Establishment" Republicans who fear that banning or severely limiting buybacks will become a permanent fact of life. Working-class Trump supporters especially should carefully examine this question and the many other critiques of Wall Street, corporate and Federal Reserve "crony capitalism" that both Warren and Sanders have proposed!

Here are two articles from the mainstream capitalist press discussing Trump's "change of heart" on this issue. Many more can be found just by googling "Trump on stock buybacks":



 
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EdwardBaiamonte

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"Share buybacks" mainly serve as a convenient way to inflate share values to increase benefits to CEOs and others who receive stock options.
Well, they could use the money to lower prices and reward their customers -right? Or, they could buy back stock instead and reward the owners-right? Do you want to be the lib Nazi bureaucrat who tells them what decision is best when balancing customers interests against owners interests??

If owners are not rewarded why would take they risk investing in a business?
 

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