Where the Heck are Share Buybacks in This Rotten Market?




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ORIGINAL POST

POSTED BY Ed (18 days ago)
Share buybacks weren’t happening today. Shares fell, after three days of rallying that followed the worst October since 2008, which had wiped out $4 trillion in overvalued market capitalization in the US, Europe, and Asia.

Shares fell today in part because Apple [AAPL], the giant in the indices, gave iffy guidance for the holidays Thursday evening; and with product sales not going anywhere, and only price increases boosting revenues, it said it would no longer disclose unit sales. This combo worked like a charm, and shares dropped 6.6%.

So where are the corporate share buybacks when you need them? This is when companies buy back their own shares in order to prop up their price and thereby the overall market. Where is this panacea that was considered securities fraud until 1982?

Throughout October, Wall Street gurus promised that shares would rise as soon as companies emerged from their “blackout” period that prevents them from buying back their shares.

Alas, companies have massively bought back their own shares in October, even during the blackout period, most likely by following the rules to the T.

Over the period of October 1 through 29, companies blew $39 billion on share buybacks, according to preliminary estimates from JPMorgan Chase, based on the average drop in share count across the S&P 500, FTSE Russell 1000, Datastream US, and MSCI US indexes, cited by The Wall Street Journal.

This was up from $30 billion in September. Based on these estimates, over the first 10 months, companies bought back about $350 billion of their own shares, an average of $35 billion a month. So in October, yes that terrible October “blackout” period, share buybacks were 11% above average for the year so far.

To help things along, numerous companies, as their shares plunged upon reporting earnings, have come out with new promises of big-fat share repurchases – though they’re not obligated to buy back those shares, and it could be just all share-manipulation hype. The WSJ lists some candidates:

https://wolfstreet.com/2018/11/02/where-the-heck-are-share-buybacks-to-bail-out-this-rotten-stock-market/

COMMENTS

Ed (18 days ago)
Let’s take a gander at International Business Machines [IBM], one of the biggest share buyback queens. Since 2000, it blew $146 billion on share buybacks. The chart below shows the cumulative amounts since 2013 that IBM wasted on share buybacks: $43 billion (data via YCharts):

https://wolfstreet.com/wp-content/uploads/2018/11/US-IBM-share-buybacks-Q3-2018.png


Wall Street gurus keep hyping that share buybacks “unlock shareholder value,” or “return cash to shareholders,” or some such thing. But here’s what IBM’s share buybacks did to shareholder value, as measured by the stock price:

https://wolfstreet.com/wp-content/uploads/2018/11/US-IBM-share-price-2018-11-02-.png

Ed (5 days ago)
And while equity-market performance in late September and October - when corporations entered a buyback "blackout" period - has largely vindicated their analysis, in case anyone still doubts the crucial role of the corporate bid, the Financial Times offered yet another piece of evidence in a story published in Tuesday's paper when it revealed the full magnitude of tech company buybacks fueled by the Trump tax cuts during the first three quarters of 2018.

Out of all the money repatriated by US companies thanks to the Trump tax cuts, US companies have spent a staggering sum on buybacks, and a comparatively paltry amount on boosting capex spending and reinvestment (the kind of corporate spending that helps drive economic growth).

Per the FT, the five US tech companies with the largest cash piles spent more than $115 billion on buybacks during the first three quarters of the year, nearly double what they spent during the entirety of last year. This is the latest sign that, while Trump sold his tax cuts as a boon for working Americans, investors have reaped most of the benefits to date (though to be fair, the companies did boost their capital spend by a combined $42 billion). The tech firms also spent some of the repatirated cash paying down debt, freeing up more money to spend on buybacks in the future.

"Most companies are using cash to buy back stock and make acquisitions, rather than invest in new facilities," said Walter Price, a tech investment manager at Allianz. "I think this is good for shareholders and management." Tech companies were also paying down debt they took on in previous years to buy back shares, he added.

These companies (Apple in particular) had been sitting on massive cash piles that had been stashed off-shore to avoid paying US taxes when the money was repatriated.

Take Apple, for example: While the tech giant spent $14.5 billion on capex during the first three quarters of 2018 (after promising to reinvest some $350 billion in tax-cut enabled repatriated cash within the US), its buyback spending soared to $62.6 billion - nearly three times the prior-year period. To be sure, some of the repatriated money has likely been earmarked for capital spending. However, this spending will likely take longer to plan and execute.



https://www.zerohedge.com/sites/default/files/styles/inline_image_desktop/public/inline-images/2018.11.13ftbuybacks.JPG

More https://www.zerohedge.com/news/2018-11-13/5-us-tech-giants-spent-116-billion-repatriated-cash-buybacks


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