What The Heck’s Happening To Our Share Buyback Boom?

(By Wolf Richter)

Going down the drain, putting this wondrous stock market at risk?

Companies in the S&P 500 spent about $3 trillion since 2011 to buy back their own shares, often with borrowed money. It’s part of a noble magic called financial engineering, the simplest way to goose the all-important metric of earnings per share (by lowering the number of shares outstanding). And it creates buying pressure in the stock market that drives up share prices.

With buybacks, you don’t need to sell one extra iPhone to boost your earnings per share. So the amounts have grown and grown. With ultra-cheap money available to borrow endlessly, companies take on debt and hollow out shareholder equity. It has worked like a charm. Stock prices have soared. Declining revenues and earnings, no problem. But something is happening that hasn’t happened since the Financial Crisis.

Share buybacks in the third quarter plunged 28% year-over-year, to $115.6 billion, the biggest year-over-year dive since Q3 2009, according to FactSet. It was the second quarter in a row of declines, from the glorious Q1 this year, when buybacks had reached $168 billion, behind only Q3 2007 before it all came apart.

READ MORE HERE:  What The Heck’s Happening To Our Share Buyback Boom?


I will be posting some of Wolf Richter’s articles on the SRSrocco Report site.  However, I will only be publishing 3-4 paragraphs, so my members will need go to Wolf’s site called WolfStreet.com to read the rest of the article.  This allows the author who puts out “original work”, to get some traffic flowing their way… as they most certainly deserve it.

I like Wolf’s work because he provides excellent fundamental analysis of what is taking place in the broader market and economy.  This article showing the huge drop in share buybacks suggests that ALL IS NOT WELL IN THE MARKETS, even with the Trump rally.

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9 Comments on "What The Heck’s Happening To Our Share Buyback Boom?"

  1. Thanks Steve, wishing you a Merry Christmas and Happy New Year.

    regards.

  2. Michael Sherber | December 21, 2016 at 6:39 pm | Reply

    Great article. Share buybacks are like socialism, they work well until you run out of your own or other people’s money. In addition, this is one of the major reasons why productivity growth in the economy has been so anemic since 2008. Earnings that should have gone to fund R&D to develop new products and services, and increase operating efficiencies instead went to buy back increasingly overpriced shares and to service the debt to buy back even more of those shares. A prime of example of this was highlighted by David Stockman in analyzing what IBM did over the last ten years.

  3. Dennis Rodenbeck | December 21, 2016 at 8:11 pm | Reply

    Thanks Steve. One thing I’ve noticed about the ‘alt’ media compared to the corporate media.

    Corporate media never mentions other news outlets. True media endorses each other and thanks them when they help spread the truth.

    God Bless and Merry Christmas,
    Karankawa

  4. Steve
    In this article by Zero Hedge the author insinuates that the US shale industry is in good shape.
    http://www.zerohedge.com/news/2016-12-20/who-won-2016-oil-war
    That seems odd put up against some of the stats that you present.

    • Barry,

      Yes, I just read the article. Tsvetana Paraskova via OilPrice.com, is guilty of “SELECTIVE DELUSION.” As I published in my article, THE SHALE GAS INDUSTRY: Countdown To Disasterr, the Shale Energy Industry in the United States hasn’t made any money since 2009. Furthermore YahooFinance put out a nifty chart showing that the U.S. Energy Sector’s INTEREST ON DEBT of operating cash had increased to 48% last year and was 86% in the first quarter of 2016.

      I would imagine the INTEREST ON U.S. ENERGY DEBT on operating cash will be higher for 2016 at 55-65% for the year.

      While there is some evidence that the Shale Energy Companies are cutting costs and becoming a bit more efficient, this is due to the total disintegration of the drilling rig industry and lower material costs due to a 50%+ decline in the price of oil. I have heard that drilling rig rates are down 50-60% than they were just a few years ago. These drilling rig companies cannot afford to make money at that horrible low rate, but there is a huge glut of these rigs out there.

      The irony of it all is this, the U.S. Shale Energy Industry is in just as much trouble as the Middle East Producers. This will become more understood over the next few years.

      steve

    • Barry, today ‘they’ monetize .gov debt, energy, banks, and they diversify in stocks from other countries to make them more interconnected and too big to fail.

      Tomorrow they WILL monetize my cousins left shoe. That’s because ‘they’ don’t have a fucking choice.

    • LOL. Then go ahead and buy lots of Exxon.

  5. Merry Christmas to all.

  6. Wolf Richter is like Stockman and Roberts and ‘Tyler Durden’

    He has ZERO understanding with respect to what is causing the global economy to go to pieces.

    He refused to acknowledge that the end of oil is the problem.

    He believes the situation we are in has been caused by ‘stupid central bankers and politicians’

    If you follow his site you will note that on many occasions he has stated:

    – high oil prices are GOOD — because they encourage more exploration for oil

    – solar and wind power are feasible – he specifically will not accept that solar and wind actually drive electricity prices higher because when the sun doesnt shine and the wind doesnt blow — you have to operate alternative power plants — and that means you double your costs.

    – he also believes electric cars are one of the answers.

    Wolf Richter is up to his ears in delusional thinking. He is pretty much a joke.

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