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Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

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Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#91

Post by pzone »

djrogers wrote: post #47
cecilpl wrote: post #31

Earlier quoted context omitted.

Right. The remaining shareholders own a larger percentage of a company that now owns less cash. Say the only thing my company owns is a bank account with $100 in it. There are 5 shares outstanding worth $20 each. The company buys back one share for $20, so now there are 4 shares outstanding in a company that owns $80.

People don't invest in companies that merely have cash. Growth and recurring revenue are more important metrics to most

OK, but if the company held $50 in non-cash assets and $50 in cash, the same logic would hold. The "growth and recurring revenue," stuff you're talking about is just an asset pricing restriction, which requires that the $50 in non-cash assets are not affected by moving some cash off the balance sheet. This holds if the company does not face cash constraints. (Like Apple.)

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#92

Post by tostitos1979 »

mattmanser wrote: post #84
pat2man wrote: post #53

Earlier quoted context omitted.

The problem with treating investment profits as regular income is that you can have negative investment profit but you can never have negative income. If I make 100k one year on my investments and loose 100k the next year I effectively paid taxes without making any money.

Yes you can. Do people not eat when they've not got a job? If you're unemployed you have a 'loss', because you have expenditures. Also, there's an additional hidden loss. I earn $30k last year, with a tax break of $3k, this year I earn nothing because I take the year off to have a baby, I lost $3k in tax break. When I work next year I don't get a $6k tax break. I can't ever make that back. Just because it's hidden, d…

Aren't net winnings are taxed for gamblers?

I'm usually calling out for a progressive tax system, however, the parent is right. Investment doesn't work the way you describe. You are asking people to risk capital in order to gain some reward. A particular investment may not pan out for years and then give a windfall. I'm going to go out on a limb and say this: typically, the longer term payoff kind of things benefit society more.

As someone who has very little capital, I too get unhappy when I see regressive tax regimes. The increase in inequality is one of the great problems of our age. That said, we must take care not to throw out the baby with the bathwater. Our current standard of living would not be possible without investment.

Your example about taking time off for the baby is an interesting one. Perhaps the tax system needs to take account of people taking sabbaticals and such.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#95

Post by lakeeffect »

cperciva wrote: post #6

Remember, in a perfectly liquid market without taxes, a company which executes a share buyback will have no change in its stock price, since the shared redeemed will be exactly balanced by a reduction in the value of the company; and this is also exactly equivalent to distributing profits in the form of a dividend. On the other hand, when the rate of taxation on capital gains is lower than the rate of taxation on cor…

The calculation is (net income - preferred dividends/ weighted average common stock outstanding) = eps. Eps is on the income statement, face of financial statements and will go up if wacs goes down. Common stock out standing doesnt include treasury stock, stock repurchased by the company.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#96

Post by jgalt212 »

HappyTypist wrote: post #80
hedonistbot wrote: post #78

Earlier quoted context omitted.

I might be wrong here but aren't most US companies flush with cash these days? I would assume that they use their cash reserves for the buybacks and not debt. Are there any stats on what is used to finance the buybacks?

Most US companies have cash overseas and have never bought them back to the US because doing so will incur a third gone in taxes. Thus they are lending the cash to the US entity to execute but backs, hoping that a tax holiday is declared in the future.

> they are lending the cash to the US entity to execute but backs

I'm pretty sure they don't do this as a loan from the untaxed or under-taxed overseas entity back to the taxed parent would create a tax event.

AAPL has more cash than it knows what to do with, but it's a huge borrower in the corporate market so that it can fund its dividend payments.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#97

Post by mrfusion »

RawData wrote: post #94
mrfusion wrote: post #93

Guys what happens if a company buys back all its shares? I've always wondered that.

The short answer is, it becomes a private company, no longer traded on the stock exchanges.

But who would own it? There wouldn't be any shareholders left.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#98

Post by maxerickson »

baus wrote: post #14
cperciva wrote: post #6

Remember, in a perfectly liquid market without taxes, a company which executes a share buyback will have no change in its stock price, since the shared redeemed will be exactly balanced by a reduction in the value of the company; and this is also exactly equivalent to distributing profits in the form of a dividend. On the other hand, when the rate of taxation on capital gains is lower than the rate of taxation on cor…

I don't think this is accurate. When a company buys back shares, the shares are retired increasing the ownership percentage of the remaining shareholders. It is basically the opposite of issuing shares and diluting existing shareholders.

Both situations are equity+cash=equity+cash.

The ownership percentage is hidden inside the equity.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#99

Post by maxerickson »

sabalaba wrote: post #49
carsongross wrote: post #34

Some day, please let it be soon, corporations will all be treated as big LLCs, with profits/dividends passed through to shareholders proportionally to be taxed at the individual income rates. Couple that with taxing cap-gains as income, since it is, and all this nonsense goes away. Owners (rather than todays "owners") get their share of profits, rich people pay their share in taxes, good triumphs over evil, and so on…

Taxing capital gains at 39.6% (our current top income bracket as of 2016) would be bad for business, job creation, and growth in the US economy. California also taxes long term capital gains (LTCG) at a top rate of 13%. It would mean that an investor in California would experience a LTCG rate of 52.6%, the highest in the entire OECD. Capital has legs and having a non-competitive capital gains rate would incentivize i…

Exactly how bad it would be is a lot more interesting than that it would be bad.

I mean, I accept that it will have a negative marginal effect, and I accept that people will shift their behavior to avoid the tax, but I don't accept that they will start stuffing their money in the mattress because they only get to keep some of the profits of their investments.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#100

Post by TheOtherHobbes »

mrfusion wrote: post #97
RawData wrote: post #94

Earlier quoted context omitted.

The short answer is, it becomes a private company, no longer traded on the stock exchanges.

But who would own it? There wouldn't be any shareholders left.

There wouldn't be any public shareholders left, and the shares would no longer be traded on the public markets.

But it's still possible to own, sell, or give away the shares privately.

It just means any dealings are by private agreement, and not open to public trade or analyst scrutiny.

This also means the value is more likely to be estimated by relying on business fundamentals and perhaps some aggressive haggling, and not on public market sentiment.

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