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>who is buying these stocks? It’s not individuals. It’s not even pension funds. It’s not the private sector. Almost all the stock purchases are being bought bac

by pacyu 7y ago

>who is buying these stocks? It’s not individuals. It’s not even pension funds. It’s not the private sector. Almost all the stock purchases are being bought back by corporations in share buyback programs. In other words, companies are buying their own stocks in order to push up the price stocks keep going up while only a minority benefits and not much is returned into actual growth http://michael-hudson.com/2017/08/stock-on-trumponomics/ http://michael-hudson.com/2017/08/stock-on-trumponomics/

lixtra 7y ago
>> The Federal Reserve says it’s going to raise interest rates. Same thing with the European Central Bank and the Bank of England. I wouldn’t consider the text very accurate in hindsight.
Thorrez 7y ago
Do buybacks actually increase stock price? If a company buys back $1M in stock, that means it has $1M less in its bank account (meaning the company is now worth $1M less), but also $1M less stock is in circulation. Mathematically I would expect the price to stay the same.
- loeg 7y ago
  https://www.investopedia.com/ask/answers/042015/why-would-company-buyback-its-own-shares.asp https://www.investopedia.com/ask/answers/042015/why-would-co...
  - Thorrez 7y ago
    Hmm, so the reasons given for the price going up seem to be: 1. It signals to investors that the company is confident and low risk. (Research and development is considered high risk.) 2. It makes the company more purely itself, it doesn't have shares backed by cash that drag back its price growth. If people expect future growth this means that growth per share will be higher, so they would start buying now to get some of that future higher growth. (Of course in addition to magnifying growth it also magnifies decline.) An interesting thing is that this article says > Stock buybacks can have a mildly positive effect on the economy overall. Which seems to contradict what that previous article said. This article also says that stock buybacks will cause other companies to do more research and development.
- jacobkranz 7y ago
  I’m the short-term, yes. The assumption is that the company cannot invest the cash into its operations at a larger rate of return than an individual investor could therefore the company (whose sole purpose is to enrich the shareholders) should return the cash. In a way, the company has an earnings yield of EPS/stock price (or inverse PE). If the company cannot invest the money in its operations that makes a larger return that the earnings yield then the stock is actually a better investment. The huge issue is that when markets crash is when technically a company should be buying back tons of its stock but rarely do companies ever do this and instead elect to hoard cash when buybacks are best & spend money on buybacks when it’s the worst ROI (when the market is hot & earnings yield is minimal).
- dwohnitmok 7y ago
  The price of a stock has only an indirect relationship to the abstract value of a company. The current price of a stock is simply the highest buy order that is not yet fulfilled by a sell order. So if a company just keeps offering to buy stock at a high enough price to match existing sell orders it'll push the price of a stock up. Whether that's sustainable in the long run is a different story, but there's no ironclad mathematical relationship.
  - Thorrez 7y ago
    Yes, but investors who see that the company's coffers keep shrinking might sell exactly enough to counteract the buys. My question is whether there's any logical reason for investors not to exactly counter the buys with matching sells.
  - deleted 7y ago
    [deleted]
JumpCrisscross 7y ago
> Almost all the stock purchases are being bought back by corporations in share buyback programs Buyback volume is comparable to dividend volume [1]. Both return cash to investors. From a macro perspective, focussing on one over the other is misleading. Buyback and dividend cash can be consumed or re-invested. Given corporate buybacks pale in comparison to broader funds flows, it looks like it's being reinvested. Even if every investor selling into a buyback consumed the cash, those buybacks are largely being funded by debt. On the net, that translates to investors hopping up the capital structure. Not exiting the capital markets. [1] https://www.yardeni.com/pub/buybackdiv.pdf https://www.yardeni.com/pub/buybackdiv.pdf
- chii 7y ago
  > From a macro perspective, focussing on one over the other is misleading. from a societal perspective, it's a tax "refund" for the wealthy to enable stock buybacks over dividends, since capital gains are taxed less, and can be tactically spread out by in time to minimize the effective rate. At the same time, a company's spending on stock buybacks are considered an expense (rather than a capital expenditure), therefore decreasing the tax bill on a company's balancesheet. I think stock buybacks should cost the company the same as dividends - that is, they should be taxed at the same rate, and also not be considered an expense that they can offset taxes from.
deleted 7y ago
[deleted]
manigandham 7y ago
That's from the summer of 2017 and misses the entirety of what happened over the last 2 years. Millions of people are very happy and benefiting greatly from their new wealth and large retirement accounts. If you can't benefit from the S&P going up 30% in a year, I'm not sure what anyone can do for you.

by pacyu 7y ago

lixtra 7y ago

>> The Federal Reserve says it’s going to raise interest rates. Same thing with the European Central Bank and the Bank of England. I wouldn’t consider the text very accurate in hindsight.

Thorrez 7y ago

Do buybacks actually increase stock price? If a company buys back $1M in stock, that means it has $1M less in its bank account (meaning the company is now worth $1M less), but also $1M less stock is in circulation. Mathematically I would expect the price to stay the same.

loeg 7y ago
https://www.investopedia.com/ask/answers/042015/why-would-company-buyback-its-own-shares.asp https://www.investopedia.com/ask/answers/042015/why-would-co...
- Thorrez 7y ago
  Hmm, so the reasons given for the price going up seem to be: 1. It signals to investors that the company is confident and low risk. (Research and development is considered high risk.) 2. It makes the company more purely itself, it doesn't have shares backed by cash that drag back its price growth. If people expect future growth this means that growth per share will be higher, so they would start buying now to get some of that future higher growth. (Of course in addition to magnifying growth it also magnifies decline.) An interesting thing is that this article says > Stock buybacks can have a mildly positive effect on the economy overall. Which seems to contradict what that previous article said. This article also says that stock buybacks will cause other companies to do more research and development.
jacobkranz 7y ago
I’m the short-term, yes. The assumption is that the company cannot invest the cash into its operations at a larger rate of return than an individual investor could therefore the company (whose sole purpose is to enrich the shareholders) should return the cash. In a way, the company has an earnings yield of EPS/stock price (or inverse PE). If the company cannot invest the money in its operations that makes a larger return that the earnings yield then the stock is actually a better investment. The huge issue is that when markets crash is when technically a company should be buying back tons of its stock but rarely do companies ever do this and instead elect to hoard cash when buybacks are best & spend money on buybacks when it’s the worst ROI (when the market is hot & earnings yield is minimal).
dwohnitmok 7y ago
The price of a stock has only an indirect relationship to the abstract value of a company. The current price of a stock is simply the highest buy order that is not yet fulfilled by a sell order. So if a company just keeps offering to buy stock at a high enough price to match existing sell orders it'll push the price of a stock up. Whether that's sustainable in the long run is a different story, but there's no ironclad mathematical relationship.
- Thorrez 7y ago
  Yes, but investors who see that the company's coffers keep shrinking might sell exactly enough to counteract the buys. My question is whether there's any logical reason for investors not to exactly counter the buys with matching sells.
- deleted 7y ago
  [deleted]

JumpCrisscross 7y ago

> Almost all the stock purchases are being bought back by corporations in share buyback programs Buyback volume is comparable to dividend volume [1]. Both return cash to investors. From a macro perspective, focussing on one over the other is misleading. Buyback and dividend cash can be consumed or re-invested. Given corporate buybacks pale in comparison to broader funds flows, it looks like it's being reinvested. Even if every investor selling into a buyback consumed the cash, those buybacks are largely being funded by debt. On the net, that translates to investors hopping up the capital structure. Not exiting the capital markets. [1] https://www.yardeni.com/pub/buybackdiv.pdf https://www.yardeni.com/pub/buybackdiv.pdf

chii 7y ago
> From a macro perspective, focussing on one over the other is misleading. from a societal perspective, it's a tax "refund" for the wealthy to enable stock buybacks over dividends, since capital gains are taxed less, and can be tactically spread out by in time to minimize the effective rate. At the same time, a company's spending on stock buybacks are considered an expense (rather than a capital expenditure), therefore decreasing the tax bill on a company's balancesheet. I think stock buybacks should cost the company the same as dividends - that is, they should be taxed at the same rate, and also not be considered an expense that they can offset taxes from.

deleted 7y ago

[deleted]

manigandham 7y ago

That's from the summer of 2017 and misses the entirety of what happened over the last 2 years. Millions of people are very happy and benefiting greatly from their new wealth and large retirement accounts. If you can't benefit from the S&P going up 30% in a year, I'm not sure what anyone can do for you.