Corporations Are Doing Stock Buybacks With the Extra Money They Have (QE4)
Record Buybacks at Worst Possible Time –Shedlock/The Maven
“Donald Trump’s tax cuts are already paying dividends… well, actually the companies that are benefiting from the Tax Cuts and Jobs Act passed by the Trump Administration in December are not only returning cash to shareholders in the form of dividends, but are presiding over what could be the largest share buyback program in history....Suddenly US companies have found themselves flush with cash, and they need to find a way to spend it. The options are typically to plough funds back into the company via capital expenditures like new buildings, products or equipment. Or, distribute the money back to shareholders in the form of dividends, or through share buybacks which don’t obviously go directly to shareholders, but reduce the number of outstanding shares, thereby making the share float less diluted….Goldman Sachs estimates share buybacks will jump to $650 billion while JP Morgan predicts they could run as high as $800 billion. Either estimate would far exceed the $530 billion in share buybacks recorded in 2017….There are plenty of negatives to share buybacks, with the most obvious being that buying back shares means that executives are foregoing the opportunity to put that extra cash back into the business instead, which could potentially grow the company long term. Recent studies have linked increased spending on buybacks to decreased corporate investment – such as expansion plans, more hiring or raises….The bottom line is that share buybacks usually do nothing to create long term shareholder value and are never a match for a steady, and sustainable, dividend.”
My Comment: When QE4 ends expect a stock market correction and maybe even a crash…it is being held afloat with Quantitative Easing or overprinting of money and Trump’s Tax Cuts.