This report was originally published by Michael Snyder at The Economic Collapse
The primary reason why stock prices have been soaring in recent months is because corporations have been buying back their own stock at an unprecedented pace. In fact, the pace of stock buybacks is nearly double what it was at this time last year. According to Goldman Sachs, S&P 500 companies spent 384 billion dollars buying back stock during the first half of 2018. That is an absolutely astounding number. And in many cases, corporations are going deep into debt in order to do this. Of course this is going to push up stock prices, but corporate America will not be able to inflate this bubble indefinitely. At some point a credit crunch will come, and the pace of stock buybacks will fall precipitously.
Prior to 1982, corporations were not permitted to go into the market and buy back stock.
The reason for this is obvious – stock buybacks are a really easy way for corporations to manipulate stock prices.
But these days it is expected that most large corporations will engage in this practice. Large stockholders love to see the price of the stock go up, and they are never going to complain when smaller shareholders are bought out and their share of the company is increased. And corporate executives love buybacks because so much of their compensation often involves stock options or bonuses related to key metrics such as earnings per share.
So in the end, stock buybacks are often all about greed. It is a way to funnel money to those at the very top of the pyramid, and those stock market gains are taxed at capital gains rates which are much lower than the rates on normal income.
Normally, you would expect successful companies to invest most of their available cash back into operations so that they can make even more money in the future. And for 19 of the past 20 years, corporations have spent more on capital investments than anything else. But now, share buybacks have actually surpassed capital spending. The following comes from CNN…
But that doesn’t mean companies aren’t spending on job-creating investments, like new equipment, research projects and factories. Business spending is up 19% — it’s just that buybacks are growing much faster.
In fact, Goldman Sachs said that buybacks are garnering the largest share of cash spending by S&P 500 firms. It’s a milestone because capital spending had represented the single largest use of cash by corporations in 19 of the past 20 years.
And this trend seems to be accelerating during the second half of 2018. It is being projected that firms will spend more than 600 billion dollars on stock buybacks during the second half of this year, and that will bring the grand total for 2018 to more than a trillion dollars…
And the trend may not be done yet. Goldman Sachs predicted that share buyback authorizations among all US companies in all of 2018Â will surpass $1 trillion for the first time ever.
Wow.
Wouldn’t it be nice if we had more than a trillion dollars that we could put toward reducing the national debt?
This is the reason why stocks hit another new all-time record high this week. Stock buybacks have reached absolutely insane levels, and what we are witnessing is essentially a giant orgy of greed.
To give you some perspective, the previous annual record for stock buybacks was just 589 billion dollars in 2007.
This year, we may come close to doubling the previous record.
And let us not forget that the year after 2007 was the worst financial crisis since the Great Depression.
So what corporations are the worst offenders? Here is more from CNN…
Apple (AAPL) alone spent a whopping $45 billion on buybacks during the first half of 2018, triple what it did during the same time period last year, the firm said. That included a record-shattering sum during the first quarter.
Amgen (AMGN), Cisco (CSCO), AbbVie (ABBV) and Oracle (ORCL) have also showered investors with big boosts to their buyback programs.
As I noted earlier, corporate insiders greatly benefit from stock buybacks, and they took advantage of massively inflated stock prices by selling off $10.3 billion worth of their shares during the month of August.
Inflating your stock price by cannibalizing your own shares is not a good long-term strategy for any corporation, but without a doubt it is making a lot of people very wealthy.
But in the process, the size of the stock market as a whole has been steadily shrinking. In fact, the number of shares on the S&P 500 has fallen by almost 8 percent since the beginning of 2011…
According to Ed Yardeni, the number of S&P 500 shares has shrunk by 7.7% since the start of 2011. This tends to increase the earnings per remaining share and the dividends available per remaining share.
This is yet another example that shows why the stock market has become completely disconnected from economic reality. Wall Street is inhabited by con men that are promoting Ponzi scheme after Ponzi scheme, and it is only a matter of time before the entire system collapses under its own weight.
But for now, the euphoria on Wall Street continues as stock prices continue to march higher. Meanwhile, we continue to get more signs of trouble from the real economy. For instance, this week we learned that the third largest bank in the entire country is going to lay off thousands of workers…
Wells Fargo, the third-biggest U.S. bank, plans to lower its employee headcount by 5 percent to 10 percent in the next three years as part of its ongoing turnaround plan, the company announced Thursday.
The bank has 265,000 employees, meaning the reduction would result in a loss of between 13,250 and 26,500 jobs.
Why would they do that if the economy was in good shape?
And globally, the emerging market currency crisis has continued to escalate. According to one source, more than 80 percent of all global currencies have fallen in value so far this year…
A review of the values of 143 global currencies indicates that so far this year, more than 80 percent have fallen in value.
Another eleven appear to be pegged to the dollar and 13 have risen in value. Of the 13 that have increased in value, only six are up more than 1 percent versus the dollar.
There have been outsized declines in countries like Venezuela (down 99 percent), Argentina (53 percent) and Turkey (38 percent). However, Brazil is down 20 percent, Russia 15 percent, India 11 percent, Sweden 10 percent, and the Philippines 8 percent. Big economies like China are experiencing a 5 percent currency value decline while the Euro is off by 3 percent.
I applaud those that have made lots of money in the stock market, but the party will not last forever.
In 2007 corporations were pouring hundreds of billions of dollars into stock buybacks, and it propped up the market for a time. But eventually the bubble burst and the crisis of 2008 was so dramatic that it will be remembered forever.
Now we are facing a similar scenario, and it is just a matter of time before this bubble bursts as well.
***
About the author: Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.
Michael T. Snyder is a graduate of the University of Florida law school and he worked as an attorney in the heart of Washington D.C. for a number of years.Today, Michael is best known for his work as the publisher of The Economic Collapse Blog and The American Dream.Â
If you want to know what is coming and what you can do to prepare, read his latest book [amazon text=Get Prepared Now!: Why A Great Crisis Is Coming & How You Can Survive It&asin=150522599X].
“The primary reason why stock prices have been soaring in recent months is because corporations have been buying back their own stock”
This is simply not true. Companies buying their own stock does not increase the price of the remaining shares.
Stock prices have been rising because more people are buying than selling. Period.
Buybacks are a less-than-honest way for companies to to increase their Earnings per Share, thus giving the illusion of increasing profitability.
Companies also have a tendency to buy at precisely the wrong time and history show this is a reliable indicator of market tops.
Don’t talk sense, it doesn’t fit the agenda.
(FWIW, Corporations usually buy back stock when they feel it is undervalued.)
And the tax payers are on the hook for the massive printing of money for QE-1 through a QE-A Zillion. So banks bailed got bailed out, and first thing they did in Nove 2008 was write them selves massive Bonuses for all Top Executives, then the stock buy backs came and feathered their nests, and they loaned out some of their instant lottery windfall to fascist buddy corporations so they could buy back their stocks. Its one big fat Bubble Ponzi scheme and Tax Payers are on the hook.
And no Bible thumping Satanic superstition worshiper has ever saved either or any single soul, nor a single sheeple follower believer, as you all die and turn to dust. If John who wrote John 3:16 is not alive, he wrote the crap and must not have even believed what he wrote either. Cause he is dead also. Its all a hoax.
You have made a claim. According to the rules of the dialectic, defend your claim.
But you can’t. Why? Because you have no proof. There is no evidence to support your claim. Thus you are making an appeal to ridicule and of all things based upon nothing but faith. And yet, you are mocking faith! It’s so ironic that are clueless to understand the basics of debate.
I get no pleasure from seeing you look ridiculous.
Show me the ever lasting alive John here and not today proof of life, that wrote John 3:16. Cricket…. Suckers born every minute. Not go back to your corner and put on your dunce cap Marathonmoron.
There are many things you simply fail to understand.
Important things.
“This is simply not true. Companies buying their own stock does not increase the price of the remaining shares.”
It certainly does as it removes shares from circulation removing supply under a given demand) also literally falsifying the PE (price per earnings) ratio. This is an established fact.
“Buybacks are a less-than-honest way for companies to to increase their Earnings per Share, thus giving the illusion of increasing profitability.”
That illusion is accomplished by less stocks x price divided by earnings. Yes it very deceitful and was at one time felony illegal. When Mobil Oil bought back its stock (and I had a pile of it) the price immediately had risen which was the intent.
The opposite of course is a two for one split in which double the amount of stock is issued and the price cuts in half. Regardless companies are buying back stock with borrowed money. The only reason its no longer criminal fraud is because the companies own the politicians who write the laws. Its unethical now and always has been.
You are spot on sir
Stuart
From Stock Trader
“Typically creates a quick and often artificial jump in the price of a stock.”
American Corporate WHORE Cowards still holding onto dreams of Orange Satan Trump delivering them “riches”, while they WHORE OUT their doomed children’s health, freedoms, and future to Satanic Pedophile PSYCHOPATHS controlling the criminal treasonous United States CORPORATION Government from the inner pits of the bowels of hell in Washington DC…..Judgement has already been PASSED damned and doomed New Babylon America and NO Satanic Stock Market in hell will save your damned country now, only our Lord and Saviour Jesus Christ can do that for the ELECT, or those who choose to accept SALVATION over DAMNATION with Lucifer, the Fallen Ones, and the criminal treasonous damned United States CORPORATION Government…NO TRULY SAVED BORN AGAIN CHRISTIAN SUPPORTS THIS GOVERNMENT FROM THE BOWELS OF HELL IN WASHINGTON DC ONLY DAMNED AND DOOMED SATANIST PEDOPHILE PSYCHOPATH LOVERS NOW SUPPORT THE UNITED STATES CORPORATION GOVERNMENT!!!!!!
Socialist communism is the only answer, ownership of corporations should be seized by the government and their earnings distributed to the people.
Anonymous
Thats a recipe for disaster. We need Glass Steagall in its mid 1930s original form back.
Wrong Stewart. Buying stock only increases the price of the stock. I even caused the rise in stock price when I was day trading back in the early 1990’s. I was buying $20K blocks of stock at a time, and made the stock price go up like a .25 of a point. Its called being the Market Maker.
And BTW/ A stock price has nothing to do with Earnings per share. Earnings are based on the amount of sales revenue you create in a particular quarter, by selling your products, not buying more stock shares. Stuart = Another public school bi-product idiot.
Ron,. so your answer is vote for Hillary and her Gang? Like the demorats are in the driver seat next to Jesus? Really??
DIVIDE AND CONQUER already completed in ALREADY CONQUERED NEW BABYLON AMERICA!!!!!!The Demon Pedophile VOODOO born Monster Hillary will probably be your next Satanist Pedophile PSYCHOPATH President ruling from the inner pits of the bowels of hell in Washington DC, as they ALL are and have been in already DAMNED AND DOOMED New Babylon America, and all you chemically lobotomized drunken dumbed down American COWARDS can do is get more drunk, pop more pharmakia in your obese mouths and toxic dump bodies, become more Satanist by accepting sodomy first as you have already done, then you will accept beastiality, and FINALLY you drunken bum pharmakia Corporate whore Satanist New Babylonian American COWARDS will accept the pedophilia already controlling your vile evil disgusting criminal treasonous United States CORPORATION government. You American COWARDS will become MORE DAMNED AND EVEN MORE DOOMED as you worship LUCIFER AND THE FALLEN ANGELS playing you dumbed down chemically lobotomized drunken bum American COWARDS who whored out your children, like they have NEVER played a collapsing society before in the history of the human race…..NEW BABYLON AMERICA IS THE MAGNUM OPUS OF LUCIFER AND THE FALLEN ONES, AMERICA IS “THE GREAT PLAN” ALREADY LAYED OUT AND ALREADY COMPLETED BY “FREEMASONS”/LUCIFER AND THE FALLEN ONES, NEW BABYLON AMERICA IS THE DREAM ALREADY COME TRUE OF ALL SATANIST, BAAL WORSHIPERS, PAN WORSHIPERS, MOLLOCH WORSHIPPERS AND THE LIST GOES ON AND ON…..so once again we come upon that term “SITUATIONAL AWARNESS” and if you are not aware of the FACT that LUCIFER/SATAN and the FALLEN ONES completely control the criminal treasonous United States CORPORATION Government from the bowels of hell in Washington DC and you still support LUCIFER and the FALLEN ONES and their United States CORPORATION Government-YOU ARE NOT A FOLLOWER OF OUR LORD AND SAVIOUR JESUS CHRIST and then the other situation you are in is called ETERNAL DAMNATION IN THE LAKE OF FIRE!!!!!
This is no more or less ethical than feeding digital pellets, to a video game pet.
Beaumont, Did you get ripped off on that digital play game and now complaining? LOL. Anything digital, or in writing can be fraud. An IOU promise, or an illusion. Both Fraud instruments.
That little stock, Cool Holdings that there was an article on here at shtfplan a few days back. Well it was $6.10 Wednesday morning and today hit $22.61. Wife gave me a green light on spending 10K on it two mornings ago when it was at 6.10 and I was a chicken. I hate me!
Take no risk, receive no reward.
Years ago, I bought all tech stocks (not
advised by brokers) loaded up on the “new
technology of social media”. For about 5
years it went skyward. When I thought it had
peaked I sold everything and invested in rental
property. Good thing, too….all tech stock took
a dump!! It took another 5 years to bounce back.
The tech companies like Compaq, Microsoft, Cisco, Intel,
Oracle, probably did what I did….but I did it FIRST.
Also had Pfizer…..as the “new little blue pill”, was sure to be
a hit by men past their prime. Guess what??
Tornadoes and hurricanes were everywhere so I
bought Clorox stock. I really didn’t know they had
so many other popular products as well….. Guess what???
God was telling me what to do… so I did it. Within 8 years
I was able to pay cash for my rental property.
Rental property is only good if you have wonderful
tenants. Bad tenants can be a horrible drain on both
nerves…and rental wear and tear.
NOTHING LASTS FOREVER , no matter what great plans you
have made…. so when it DOES WORK OUT RIGHT…
be thankful because it WILL CHANGE…somewhere…sometime.
They used to say that it was 40 times riskier to buy and sell stocks then just look up a good no load mutual fund with a good track record over at least a decade and a calm insightful manager and still get double digit returns.
Do that and over time, it adds up. This is especially true due to the insanity of algo trading. Trying to beat complex massive computer trading is nigh impossible. Buy and holding might work though. Everything seems too overpriced to do that based upon fundamentals.
Back when I was working I invested in Dodge and Cox.
Good returns I had plenty of time to recover when the market
went south.
Today I’m on a pension or two, I only invest in Tbills
and myself.
If I were 40 years younger, I’d do the same as I did then
real estate and education in STEM.
This is what is so tragic about the state of atheism today. In the old days, they were among the intelligensia as they were most often educated people. Now, atheists are dingdongs and taunters and nothing more. They are plumb silly mockers that no one can take seriously.
You see, in philosophy, each person has a “belief” and you defend that belief. Thus you propose ideas and explain your belief. The other does the same. And this process is called the dialectic. And you poke holes in their reasoning and they do the same.
Say one believes in YHWH. They explain why through evidence and reason. The other disbelieves in YHWH. They explain why through evidence and reason. There is an equal burden of proof as BOTH HAVE A BELIEF OF SOME SORT. In philosophy, then there are three options. You believe in X or you disbelieve in X. Otherwise you do not know and hope to discover the answer through the dialectic.
Then around the nineties, some goofy pseudoatheist came along who was uneducated in the process of philosophy. He claimed that he had a “lack of belief” as a fourth option. NOPE. That state doesn’t exist in philosophy. Look it up.There is only the three: belief, disbelief, or uncertainty. Since he claimed a “lack of belief”, then the burden of proof was on anyone else making a claim. He claimed to have no belief yet spent all his time in sheer disbelief of YHWH (GOD).
This was WRONG. In philosophy, there is an equal burden of proof. And that is why the belief or disbelief in YHWH is typically declared a stalemate. There are lots of “proofs” of GOD. There are lots of evidence of GOD. GOD is the most likely answer to the origin of the universe due to the principle of Occam’s Razor: what is the most likely cause that is simple and explains it.
But atheists refuse to accept it. And ultimately there is no precise evidence. There is no ultimate reason to arrive at a conclusion. Thus it’s a educated guess based on faith. The Christian believing in GOD relies on reason and faith and evidence. The atheist disbelieves in GOD relying on reason and faith and evidence. But there is NOTHING conclusive, thus there are agnostics who do not know due to uncertaity.
Now the agnostics are a bit whishy-washy as they routinely do not have perfect evidence or a rationale for believing in a principle. Yet they believe. They are guilty of moving the goalposts for the belief in GOD because they demand extraordinary irrefutable evidence or reason. And they do not demand that for ANYTHING ELSE.
What you say? You are not here to discuss philosophy? I beg to differ. Preppers are pragmatists who discuss philosophy all the time. Our philosophy originates from pragmatism and ancestral skills. And if you mention GOD, then immediately you are discussing philosophy. Specifically you are discussing ontology ie the nature of being or existence.
A gadfly is a buzzing insect. And the above gadfly makes assertions in every topic as a contrarian who makes assertions but offers zero proof or evidence of his beliefs. He accepts his disbelief on faith yet mocks those who use faith to believe in GOD. It’s hysterical balderdash.