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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)

#101

Post by forgetsusername »

virmundi wrote: post #29
xenadu02 wrote: post #25

So many companies with so much profit they literally can't find any way to invest it to generate return. It might make you wonder why wages are stagnant or what the argument for outsourcing to lower labor costs is really about, if you were the sort of person to bother wondering about such things.

I no longer wonder about such things. The simple fact of the matter is that the system is designed to work against wage earners. It focuses on the benefit of our corporate overlords. For example, I use to work for a company as a wage earner. I left, moving my 401k into a self-directed IRA. Since the market has been bad lately, I remained in cash. I want to put that money somewhere else: property. I would love to buy…

I love how you think leveraging your retirement savings to be a commercial landlord with zero experience is a good idea.

That's a highly competitive market filled with deep pockets and thin margins.

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

#102

Post by rsp1984 »

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…

and this is also exactly equivalent to distributing profits in the form of a dividend.

I don't see this equivalence. I guess It's rather like settling debt since after a buy-back there will be fewer future dividends to pay. But nothing changes for continuing shareholders, does it?

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

#103

Post by forgetsusername »

Htsthbjig wrote: post #88
xenadu02 wrote: post #25

So many companies with so much profit they literally can't find any way to invest it to generate return. It might make you wonder why wages are stagnant or what the argument for outsourcing to lower labor costs is really about, if you were the sort of person to bother wondering about such things.

Not so, real profits are low. Companies are doing buybacks because the Fed is basically siphoning all the wealth to big business and the Government via 0 per cent interest rates. In the past companies had to offer their stock in exchange of savings. Today The central banks basically finance big corp and Government just printing money(and diluting the currency). So instead of using your savings, the central banks crea…

>Companies are doing buybacks because the Fed is basically siphoning all the wealth to big business and the Government via 0 per cent interest rates.

Wow, you managed to put almost every misinformed finance meme into a single paragraph.

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

#104

Post by eru »

rsp1984 wrote: post #102
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…

and this is also exactly equivalent to distributing profits in the form of a dividend. I don't see this equivalence. I guess It's rather like settling debt since after a buy-back there will be fewer future dividends to pay. But nothing changes for continuing shareholders, does it?

For simplicity, assume that the company buys back stock from all shareholders equally, and then the shareholders trade amongst themselves.

Dividends and buybacks are simply a way to get money from the company to the shareholder. The total number of outstanding shares is of no import---as you can see in stock splits.

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

#105

Post by eru »

phyalow wrote: post #45
JDDunn9 wrote: post #41

Earlier quoted context omitted.

Investors buying more shares with dividends doesn't decrease the number of shares outstanding. If you increase the share price without decreasing the share count, you have created value out of thin air and are saying the company was more valuable without the cash than it was with it. The key is the asymmetry of information. The market price should reflect all public information. However the company has non-public inf…

Number of shares doesn't matter, enterprise value does and it doesn't change. Your implying that there would be a further equity issuance which doesn't routinely happen on buybacks.

Exactly. If number of shares would matter, share splits would matter.

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

#106

Post by eru »

hardcandy wrote: post #18
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…

There's another issue created when companies issue debt in order to fund share repurchases. It may seem to make financial sense rates are so low but it's created a huge amount of additional leverage throughout the corporate world.

That's because interest payments on debt are taxed at a lower rate than dividends. Fix the tax system, and the leverage will go away.

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

#107

Post by eru »

Hhefferman1989 wrote: post #90
jensen123 wrote: post #79

Earlier quoted context omitted.

Even if the tax percent was exactly the same on capitals gains and dividends, buybacks would still make sense. Dividends typically are paid out at least once year. On the other hand, you only incur capital gains when you sell shares. So, with share buybacks, you can potentially wait many years before you pay the tax, having the money accumulate for you in the meantime.

Don't forget the signaling effect, which can significantly boost share price

Dividends also signal.

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

#108

Post by eru »

SilasX wrote: post #40
Animats wrote: post #7

This is a consequence of tax law and greed. There are three ways a company can pay for their capital - dividends, interest, and stock buybacks. The first is taxable. Only the last makes options given to executives valuable. The US should tax buybacks and interest as it does dividends. That would put a stop to this.

Or just quit taxing dividends since you're already taxing the same investment return when it appears as corporate profit or capital gains, and adjust the rate for equivalence. Then you save on the collection costs.

Not taxing all three of them is still taxing them the same.

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

#109

Post by eru »

AnthonyMouse wrote: post #28
Animats wrote: post #7

This is a consequence of tax law and greed. There are three ways a company can pay for their capital - dividends, interest, and stock buybacks. The first is taxable. Only the last makes options given to executives valuable. The US should tax buybacks and interest as it does dividends. That would put a stop to this.

All of them are taxable. Interest is taxable income (to the lender), though it's also a prime opportunity for tax arbitrage so the lenders have a strong tendency to be incorporated in low tax jurisdictions. And buybacks effectively get taxed as capital gains (because they result in higher share prices), but not until the shareholders sell their shares, and of course then it's at the capital gains rate. So what you're…

> [...] and of course then it's at the capital gains rate.

Which might be zero, depending on where the shareholders sit.

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

#110

Post by eru »

joshdickson wrote: post #42
brisance wrote: post #39

Earlier quoted context omitted.

Only problem is that a lot of research has been done that show that M&A deals typically leads to destruction of shareholder value. [1] http://www.efinancialnews.com/story/2012-01-24/large-mergers... [2] http://www2.warwick.ac.uk/fac/soc/wbs/subjects/accountinggro... [3] http://www.evancarmichael.com/library/stephen-warrilow/Merge...

No. The goal of M&A is to increase shareholder value, if the data said acquisitions generally do not do that, we would not have M&A. Your links simply show that some M&A scenarios (major acquisitions, acquisitions that are overpaid for, etc) lead to underperformance, not that M&A as an overarching thing "typically leads to the destruction of shareholder value." Nowhere do those articles say that.

We have M&A because it leads to value creation for management. They like their empires to grow.
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