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S&P 500 Buybacks Now Outpace All R&D Spending in the US

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Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#221

Post by riversflow »

hippich wrote: post #163
take_a_breath wrote: post #126

Earlier quoted context omitted.

Your data does not say what you are claiming it says. It is possible (or even probable) for the ultra-wealthy to have retirement accounts. Once we admit that, then the obvious question becomes: Who do you think owns most of the money in those retirement accounts, the rich or the poor?

Retirement accounts are limited by the amount one might deposit annually. The most perhaps one can make is 19k in 401k and perhaps somehow max out SEP IRA - $56k (which I find quite tough to max out). Regular IRAs are out of questions, since at the income level dealing with 401k and SEP IRA, one does not get any benefits of funding regular IRA afaik. So... The best-case scenario is $75k per year someone might be able…

$75k per year is a pretty insane amount of disposable income for most Americans, where median household income is 63k[1], per capita disposable income is 45k[2], and 78% of people report living paycheck-to-paycheck[3]. Anecdotally the only people I know who are funding their retirement well in there 20’s are generationally wealthy and got a house from mom and dad. Many, even those with some disposable income, live paycheck to paycheck.

Also, as my sister comment points out, rich people can still have ridiculous retirement accounts. Saying that “everyone gets a piece in retirement” ignores a large portion of our society.

[1]https://fred.stlouisfed.org/series/MEHOINUSA646N [2]https://fred.stlouisfed.org/series/A229RX0 [3]http://press.careerbuilder.com/2017-08-24-Living-Paycheck-to...

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#222

Post by solatic »

crazygringo wrote: post #55
try-perforate wrote: post #4

Read an idea in American Affairs in support of taxing buybacks. The logic goes that if all companies have a fiduciary duty to shareholders because the market is the most efficient capital allocator, AND all companies are giving their cash back to shareholders, THEN it must be true that the market can not figure out how to efficiently allocate this $1T of capital. Thus, the government should have “next dibs” for items…

That doesn't make any sense. The market is the most efficient capital allocator because shareholders are the market, not companies. Companies are giving their cash back to shareholders because each individual company thinks their shareholders can better allocate the cash, rather than the companies themselves. This is equally true for both buybacks and dividends. This is because most companies have no wish to operate…

If the purpose of equity buyback is to more efficiently allocate capital, then individual companies executing equity buyback are doing so because can no longer make efficient use of capital by using it to fuel additional growth and higher returns.

If that's the case, then equity buyback is tantamount to admitting that the company has no future potential for growth. As a company's stock price reflects expected value from future growth, a buyback should therefore trigger a drop in the stock price.

But it usually doesn't, usually buybacks trigger increases in the stock price as fewer shares remain in circulation in the public market and the company improves executive flexibility by consolidating control, and as investors expect to be paid a premium over market price through the buyback program.

Why? Because private players don't care about macro performance metrics. Buybacks have nothing to do with what may or may not be the best allocation of capital in the market.

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#223

Post by frockington1 »

ultraluminous wrote: post #167
asdfasgasdgasdg wrote: post #100

Earlier quoted context omitted.

Doesn't one require the other? You have to buy back the stock from someone. That someone is necessarily divesting themselves of the stock as a result.

If you're referring to "...investors have been cashing out of US stocks at a record pace", than to further clarify - investors are divesting out of the public stock market entirely . They're not selling their Apple stock in a buyback to invest the proceeds of the sale into an exciting IPO, or a deep value small cap. They're just taking it out of entirely. Think what that implies about the macro structure of a "market…

Macro, it seems to mean that owners believe in their companies and want more equity. Hardly a bad thing unless you're trying to predict the next recession

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#225

Post by mdorazio »

rbavocadotree wrote: post #71

AQR published a paper on share buybacks last year [0] with the opening sentence "People seem to forget some of the very basic lessons of financial economics when it comes to share repurchases". One of the big things missed by all the articles covering share repurchases, is that they are increasing at a rate similar to company market cap. That shouldn't be too surprising. The real story is why is R&D not keeping up? I…

I strongly agree that the real story is in why R&D spending is stagnating or dropping in comparison to earnings. Personally, I think there a number of contributing factors including less competition from new businesses (new businesses starts with employees are way down from previous decades), decreased competition from large competitors (see Disney buying up everyone in the entertainment industry as an example), regulatory capture, increased risk aversion in the corporate world, and just the fact that low hanging fruit are mostly picked at this point so that the next major improvement might require way more investment than a lot of companies are comfortable with (see the massive increase in new semiconductor fabs and drug discovery as examples).

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#226

Post by rootusrootus »

Mikeb85 wrote: post #117
cs702 wrote: post #12

Large US corporations have been buying back their own stock in record amounts, while investors have been cashing out of US stocks at a record pace , recent data shows: https://www.msn.com/en-us/money/markets/investors-bail-on-st... -- money is not being plowed back into IPOs, secondary offerings, etc. According to orthodox economic theory , large US corporations must be buying back stock with earned profits and new d…

Investors might be cashing out because the stock market is at a high. This is literally investing 101. Buy low sell high.

That's more like Gambling 101. Investing 101 would be dollar cost averaging.

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#227

Post by tylerhou »

ISL wrote: post #82
pc86 wrote: post #9

Earlier quoted context omitted.

What would this look like from a practical standpoint, though? Dividends are a taxable event because you're giving someone money. In a buyback, the value of the stock simply goes up, which isn't a taxable event. How do you determine the cost basis on something like that? If there's a stock buyback over the course of 6 months, how do you determine which proportion of the price increase is due to the buyback, as oppose…

In a buyback, a shareholder must sell shares back to the company. When they do, the shareholder's gains are taxed with capital-gains tax. Furthermore, whenever shareholders sell shares after the buyback, their shares are generally worth more, so they pay increased capital gains, too. I don't know which yields more tax revenue in the long run, but buybacks definitely generate some tax income. The only time I could see…

> If the market is efficient (and it isn't, but it can be) then following a buyback, one would expect the market capitalization of the company to be smaller, as the company has paid out money.

The company's cash flow is the same, but there are fewer outstanding shares, so earnings per share goes up. Earnings per share matters because when it increases that implies that future dividends per share will also increase.

If investors expect higher future dividends, that means that the stock is worth more, so it goes up.

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#228

Post by papito »

frockington1 wrote: post #223
ultraluminous wrote: post #167

Earlier quoted context omitted.

If you're referring to "...investors have been cashing out of US stocks at a record pace", than to further clarify - investors are divesting out of the public stock market entirely . They're not selling their Apple stock in a buyback to invest the proceeds of the sale into an exciting IPO, or a deep value small cap. They're just taking it out of entirely. Think what that implies about the macro structure of a "market…

Macro, it seems to mean that owners believe in their companies and want more equity. Hardly a bad thing unless you're trying to predict the next recession

You don't have to "believe" if you are planning on getting out before the chumps do. It's like robbing a bank, only legally.

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#229

Post by papito »

Mikeb85 wrote: post #117
cs702 wrote: post #12

Large US corporations have been buying back their own stock in record amounts, while investors have been cashing out of US stocks at a record pace , recent data shows: https://www.msn.com/en-us/money/markets/investors-bail-on-st... -- money is not being plowed back into IPOs, secondary offerings, etc. According to orthodox economic theory , large US corporations must be buying back stock with earned profits and new d…

Investors might be cashing out because the stock market is at a high. This is literally investing 101. Buy low sell high.

Then why are companies buying back at record highs? Surely they are not dumber than Joe the Investor on Main Street.

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#230

Post by toast0 »

anotherman554 wrote: post #213
toast0 wrote: post #184

Earlier quoted context omitted.

The basis step up on death is a byproduct of going through the estate tax. Yes, for the vast majority, the estate tax is $0, but it's not untaxed.

The first 11.4 million of an inheritance would be untaxed.

It's taxed, and the rate is $0. If it were untaxed, like when the estate tax expired, you wouldn't get the step up in basis.
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