According to statistics released by Axios, a US news website, by the end of April this year, US listed companies have announcedStock repurchaseThe total amount of the plan has reached 272 billion US dollars, and everyone is gearing up to challenge the historical high of 1.085 trillion US dollars last year.
(Although it has shrunk, technology companies are still the most keen on stocks.RepoPlate, source: Axios)
Real Investment Advice columnist Lance Roberts pointed out that stock repurchases themselves are actions that manipulate the market and deliver benefits. At present, the US stock market “repurchase addiction” may need to undergo a “1929-style” crisis to correct.
Roberts pointed out that the continued increase in earnings per share of US stocks after the subprime mortgage crisis cannot be separated from the “push” of the decrease in the total number of outstanding shares.
(The contribution of the number of outstanding shares to the EPS of US stocks, source: RIA)
Of course, to explain why stock repurchases are a "bad thing", we must start with the origin of stock repurchase.
From "illegal transactions" to "stock opium"
Roberts pointed out that for many investors, it is certainly not imaginable that stock repurchases have been strictly manipulated by the US for most of the past 100 years. In 1933, the United States began to ban stock repurchase transactions in 1933. Until 1982, the US Securities Regulatory Commission revised the rules to open up legal channels for listed companies to buy back shares.
The first "repurchase tide" in the US stock market can be traced back to the 1993 Clinton administration. At that time, the Clinton administration tried to restrict the listed companies by modifying the tax law.ExecutiveWith more than a million dollars in cash, smart executives quickly turned cash compensation into "stock options." As a result, Clinton's tax reform has not only failed to control the gap between the rich and the poor, but has also catalyzed a more serious gap between the rich and the poor as productivity has increased.
(Companies that make more money are increasingly reluctant to share profits with employees, source: RIA)
According to the US Economic Policy Research Institute, in 1982, the average US listed company CEO and ordinary employees earned 50 times, and today, due to more stock options and rewards, the income gap has been widened to 144 times.
Roberts pointed out that the reasons for supporting stock repurchases are mostly untenable:
The company can't find a higher potential reinvestment channel (the repo itself is already the worstcurrencyCash use method)
The management believes that the stock price is undervalued (is the management concerned about the stock price?)
The repurchase program can be terminated at any time (who has the final say?)
. . . . . .
Roberts said that around such a big circle, only the best for management compensation is the most reliable.
Let’s talk about another story. At the end of 2017, the US passed the tax reduction bill, which reduced the corporate tax of 35% to 21%. When the bill was first promoted, the American public was told that as long as these companies were able to get more money, they would hire more employees, raise wages, and expand their local investments.
But what about the truth?
Market Watch columnist Caroline Baum commented on the tax cuts policy of Kevin Hassett, chairman of the White House Council of Economic Advisers, saying: "Beyond expectationsGDPGrowth came from inventory, trade activity, federal and local government investment, but business investment in the original supply-side reform plan did not increase as expected. ”
(The increase in business investment expected by the White House has not occurred, BEA, Haver Analytics)
Unsurprisingly, those policy makers are eager to invest in raising the productivity of American society, and most of them are used to buy back shares.
The last question is coming: stock repurchase is at least a good thing in the securities market, ifshareholderCan we get a return on investment through stock repurchases, which is at least a force for economic construction?
Roberts said: It is necessary to see who can get the so-called "reward".
After all, it’s a game for a few people.
Roberts suggested that there is a concept that is confused in this issue. The so-called return on investment for shareholders meansDividendInstead of stock repurchases.
For shareholders, if you sell stocks after a short period of stock price hikes, it has nothing to do with the company, not to mention that not all companies’ stock prices will rise after stock repurchase, last year’sappleThis is the best example. So the rules of the whole game are very simple. After the repurchase plan to raise the stock price, the people who have been able to throw stocks have the most benefit.
According to a recent report released by the US Securities and Exchange Commission, an astonishing number of listed company executives have thrown large amounts of stock after the company announced its repurchase program.
Wall Street Journal columnist Jesse Fried pointed out that the real problem with stock repurchase is that this mechanism directly transfers shareholders' equity to company executives, and executives can even use this mechanism to push up earnings per share and get extra rewards. .
Roberts said that if there is anything worse than a stock repurchase, it is a leveraged stock repurchase. For the rapid growth of corporate bonds in recent years, international liquidationbankIt has long been pointed out that if the economic situation deteriorates in the future or the rating of the issuing company will result in a certain amount of mature corporate bonds being unable to be refinanced, it may trigger a panic selling of such bonds.
Roberts pointed out that in the next five years, about 62% of investment-grade corporate bonds will expire, and there will be many companies that will regret doing so many stock repurchases.
(Article source: WEEX trades together)