Stock buybacks rule – Tax breaks enable

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Photo: Roberto Machado Noa/LightRocket via Getty Images
As predicted, not by the tweeter in chief, but by almost anyone who understands big companies and executive, stock buybacks hit an all time high in 2018 and are likely to be higher again in 2019.

This is a big deal, companies that buyback their stock, are reducing the number of shares available on the market. That generally means the share price goes up. Share prices are often one of the main ways executives are measured, their bonuses are usually dependant on the share price. Also, because the price of each share goes up, it makes it harder for lower and middle class people to get in on the action.

buying your own shares is like eating your own young, a glorified share manipulation gamble

The other reason share buybacks are import to watch, is they effectively use the companies cash to “eat themselves”. That cash is then no longer available for Capital investment, new building, equipment and other necessary expansion expenditure. Citigroup reports that companies buying back their own stock, spent more money doing that, than at any time since 2008.

Home Depot announced a $15-billion buyback in February, as a way to artificially hedge their share price, after they announced they’d miss expectation on revenue. Cynical share price manipulation. I have no idea if they used repatriated tax money, but if they miss earnings again this year, the share price will drop. Of course the executives and board will be ok, they’ll have sold their shares at the newly inflated share price, which is down on it’s 2018 high(212.39), but not nearly as low as it would have been if they’d not bought their own shares.

Next time a big business closes an office near you, and jobs are lost, don’t take their reason at face value. When did they last do a stock buyback, and how much cash was repatriated under the Trump/GOP tax break for 2018?