tybs
Banning Buybacks Would Crash The Market, Goldman Warns
(Op-ed) and two additional articles explaining how and what this is used for
Few topics prompt as powerful (and violent) a response from financial professionals as what the role of financial buybacks is in determining stock prices. One group, largely those bulls who after a decade of central bank.
Manipulation still believe that markets are efficient and unrigged, and in hope of increasing their AUMs claim that they are financial geniuses for riding the world's biggest financial bubble in history, argue that stock buybacks have no impact on stock prices. Others, those who actually understand that if there is a trillion dollars in price indiscrimiante stock bids (as was the case in 2018 and will again happen in 2019) is the single most effective way to boost stock prices (and management's incentive-linked comp, linked to higher stock prices), know - correctly - that corporate buybacks, which until not too long ago were banned, and which over the past decade emerged as the single biggest source of stock purchases, are one of the two most important factors behind the all time highs in the stock market (the other being the Fed, whose policies have allowed companies to issue debt with record low yields, allowing them to fund these trillions in buybacks)
And while Goldman tried, to demonstrate that "executives whose compensation depends on EPS, did not allocate a higher proportion of 2018 total cash spending to buybacks than companies where management pay is not linked to EPS", the bank was forced to admit that last year buybacks did surpass capex as the biggest use of capital allocation.
Goldman's valiant effort to halt regulatory and legislative focus on buybacks - which also included Goldman’s ex-CEO Lloyd Blankfein issuing a rebuttal defending the practice on Twitter, saying the money “gets reinvested in higher growth businesses that boost the economy and jobs" did little however to stem the tide and as a result buybacks have been getting increasing scrutiny in the wake of the tax reforms in late 2017, when companies used money saved from the lower taxes as well as repatriated cash to return money to shareholders in record amounts, with total announced buybacks surpassing $1 trillion for the first time in 2018
(of course he would say this!)
As a result, Republican Senator Marco Rubio of Florida released a plan last month that would curb buyback incentives(about time). Democratic Senator Chris van Hollen of Maryland may propose legislation curbing executive share sales after repurchase announcements. The culmination - so far - was the US Senate convening hearings and introducing legislation to prohibit public companies from repurchasing their shares on the open market.
This was too much for Goldman, which realized that the carrot approach is not working, and late on Friday went all "stick", when one month after his first report exposing buyback "misconception", Goldman's David Kostin doubled down, effectively warning that a ban on buybacks would likely result in a market crash, as "eliminating buybacks would immediately force firms to shift corporate cash spending priorities, impact stock market fundamentals, and alter the supply/demand balance for shares."
And just to underscore his dire warning, Kostin said that from a portfolio strategy perspective, "the potential restriction on buybacks would likely have five implications for the US equity market: (1) slow EPS growth; (2) boost cash spending on dividends, M&A, and debt paydown; (3) widen trading ranges; (4) reduce demand for shares; and (5) lower company valuations."
see cap 2
So as Goldman turns from a carrot to a stick approach, one can summarize the latest Goldman report by observing that very bad things will happen if Congress proceeds with its intentions to ban buybacks. There is a silver lining: while Goldman previously sided with the generally clueless segment of "financial experts", claiming that the impact of buybacks on stocks is at best muted, now that buyback legislation is becoming an increasingly greater threat by the day, Goldman can finally admit the truth: without buybacks the market will crash.
And with Goldman's abrupt and honest reversal, we are confident that the debate whether buybacks influence stocks or not, can finally be laid to rest.
https://www.zerohedge.com/news/2019-04-06/banning-buybacks-would-crash-market-goldman-warns
see:
Stock Buybacks: The Greatest Deception
https://www.forbes.com/sites/investor/2017/07/24/stock-buybacks-the-greatest-deception/#76bd3b8a6968
Stock Buybacks Are on Track for Another Record Year
https://www.barrons.com/articles/stock-buybacks-are-on-track-for-another-record-year-51550682106
see this link for any terms of phrases you are unfamiliar with:
https://www.investopedia.com/dictionary/
how many times are they going to try this?
but bubba learned fast. Too fast.
Reagan had little control when entering the WH. None after the attempt. Then the latin debt crisis was put on steroids.. Caravans are a direct result of this