"Bubble Finance: How The Share Repurchase Mania Is Gutting Growth And Leaving Financial Wrecks"

"...during the “difficult” economic times since the financial crisis began gathering force in Q1 2008, the S&P 500 companies have distributed $3.8 trillion in stock buybacks and dividends out of just $4 trillion in cumulative net income.

That’s right, 95 cents of every dollar they earned—including the huge gains from restructurings, downsizings and job terminations—was flushed right back into the Wall Street casino.

...a 95% rate of distribution is a giant aberration. Were this outcome to occur on the undisturbed free market, for example, it would signal an economy that is dead in the water and that participating companies face a dearth of opportunities to reinvest profits in future growth.

...So the $3.8 trillion of dividends and buybacks since Q1 2008 reflects not the natural economics of the market at work, but the artificial regime of monetary central planning and the tax-advantaged treatment of corporate debt. Corporations are eating their seed corn because boards and CEO’s function in a Fed-created financial casino where they are massively incentivized to feed the fast money beast with ever larger share buyback programs in order to shrink the float and goose per share earnings. Doing so generates plump stock option gains...

...this pattern is owing to the fact that the Greenspan/Bernanke/Yellen “put” under the stock indices has destroyed two-way markets and the natural short interest that arises in any honest securities market.

...Just prior to the financial crisis in Q1 2008, for example, share buybacks and dividends among the S&P 500 companies amounted to 130% of net income—-a distribution rate which plunged to just 65% during the dark days of Q1 2009.

...as financial markets reach their Fed induced bubble peaks, companies spend all they earn and all they can borrow chasing their stock prices ever higher. Indeed, during the most recent quarters, share repurchase programs have been the marginal bid which has propelled the stock indices to their current nosebleed heights.

Corporate stock buybacks thus function as a bubble cycle accelerator, meaning that they are making each new Fed reflation cycle more extreme and unstable.

...the Fed’s money printing has ballooned and amplified the financial bubble cycles, the trend in real capacity growth has steadily worsened.

...no Fed minutes ever even hint at the corporate seed corn that is being consumed or the perverse behavior in the C suites that has been induced by monetary central planning.

...the share buyback mania leaves competitively challenged businesses in a precarious position and unable to weather downturns in the general business cycle or in their own sector.

Radio Shack...is now tottering on the edge of bankruptcy...  during the past 13 years it repurchased $3 billion of stock on the back of only $2.1 billion in cumulative net income. Indeed, in seven of those years it flushed back into the market more than 100% of its earnings—including $400 million of buybacks in 2010 on only $200 million of net income.


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