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What I have been moaning about:

Scorpio

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#1
been yapping about this farce for awhile now and how these companies are 'trading' their own stock rather than running their businesses.

and the following was a predestined result IMO,


Companies lose billions buying back their own stock

Big companies have lost billions buying their own shares

By Bernard Condon, AP Business Writer 7 hours ago


.

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This combination of file photos shows logos for IBM, Macy's, Chevron and Starwood Hotels and Resorts group's W Hotel Hollywood. Big companies have lost billions buying their own shares. Nearly half the companies in the Standard and Poor’s 500 index paid more for their shares in the past three years than they are worth, according to analysis by The Associated Press. Retailer Macy’s is down $1.4 billion on its purchases, a 24 percent loss. As the price of oil plunged, driller Chevron lost $3.3 billion betting on its stock, a 33 percent loss. Starwood Hotels & Resorts Worldwide has lost hundreds of millions on buybacks, more than a fifth of what it spent. IBM has the biggest losses from buybacks, down $5.5 billion. (AP Photo)




NEW YORK (AP) -- If you think your stocks are doing poorly, check out the performance of some of the most sophisticated investors, the ones with more knowledge about what's going on inside businesses than anyone else: Companies that buy their own shares.

The companies losing money on these bets are down a collective $126 billion over the past three years, a decline of 15 percent.

Many corporations would have been better off investing that cash in an index fund instead of their own stock. The overall market rose 39 percent over the same period. The companies could also have distributed that cash as dividends to shareholders, allowing them to spend what is, in the end, their money.

And it's not just a few big corporate losers accounting for all the pain. The group includes 229 companies in the Standard and Poor's 500 index, nearly half of the companies in the study prepared by FactSet for The Associated Press.

When a company shells out money to buy its own shares, Wall Street usually cheers. The move makes the company's profit per share look better, and many think buybacks have played a key role pushing stocks higher in the seven-year bull market.

But buybacks can also sap companies of cash that they could be using to grow for the future, no matter if the price of those shares rises or falls.

And the recent losses highlight another criticism: Companies may be good at finding oil or selling bathroom trinkets, but they aren't always smart stock investors. Some corporations bought ever more of their own shares even as prices tripled from financial-crisis lows and several measures showed the market was overvalued.

"Whenever you see a buyback, the company always says, 'We think our stock is cheap,'" says Nicholas Colas, chief market strategist at brokerage ConvergEx Group.

They are sometimes so confident that they take out enormous loans just to buy more and more shares. That those shares have now plunged in value is something Colas calls a "great irony" of the bull market.

Among the companies with the biggest paper losses are struggling ones that bought after their stock fell, only to watch prices drop even more. Macy's, the beleaguered retailer, is down $1.5 billion on its purchases, a 26 percent loss. American Express has lost $4.1 billion, or 34 percent. As the price of oil plunged, driller Chevron racked up $2.8 billion in paper losses, or 28 percent.

The losses are also piling up in unexpected places, such as at companies that have generated solid earnings through most of the bull market, suggesting that there is danger when stocks of even top performers climb too high. Starwood Hotels & Resorts Worldwide and Ford Motor have each lost hundreds of millions on their buybacks, more than a fifth each of what they spent.

Defenders of buybacks say they are a smart use of cash when there are few other uses for it in a shaky global economy that makes it risky to expand. Unlike dividends, they don't leave shareholders with a tax bill. Critics say they divert funds from research and development, training and hiring, and doing the kinds of things that grow the businesses in the long term.

"The company doing the most buybacks is often not investing enough in its business," says Fortuna Advisor CEO Gregory Milano, a consultant who has written several studies criticizing the purchases. He says most buybacks are "financial engineering" and a waste of money.

The study looked at 476 companies in the S&P 500 index, leaving out the index members that split off parts of their businesses during the period. Among the findings:

___

$100 MILLION CLUB

Nearly a third of the companies studied, 153 in all, lost $100 million or more on their purchases in three years.

___

NOT JUST ABOUT OIL

Four of the top 10 biggest dollar losers are energy companies. But big losses are hitting a variety of companies, including insurers and banks, retailers, technology companies, airlines and entertainment giants.

___

BIGGEST WINNER, BIGGEST LOSER

MasterCard has the biggest paper gains from buybacks: $7.9 billion. IBM has the biggest paper losses: $9.8 billion. IBM says it isn't neglecting long-term investments and notes that the money it spent on R&D, big projects and acquisitions last year was triple what it spent buying its stock.

___

GAINERS HELP, SORT OF

When the companies that have profited from buybacks over the last three years are included with the losers, the paper losses narrow to $11 billion. Total spent on buybacks by all companies: $1.43 trillion, more than the annual economic output of all but 12 of 193 countries in the world, according to the World Bank.

Stocks may bounce back, of course, turning losses into gains. But the history of buybacks isn't encouraging.

Companies often buy at the wrong time, experts say, because it's only after several years into an economic recovery that they have enough cash to feel comfortable spending big on buybacks. That is also when companies have made all the obvious moves to improve their business — slashing costs, using technology to become more efficient, expanding abroad — and are not sure what to do next to keep their stocks rising.

"For the average company, it gets harder to increase earnings per share," says Fortuna's Milano. "It leads them to do buybacks precisely when they should not be doing it."

And, sure enough, buybacks approached record levels recently even as earnings for the S&P 500 dropped and stocks got more expensive. Companies spent $559 billion on their own shares in the 12 months through September, according to the latest report from S&P Dow Jones Indices, just below the peak in 2007 — the year before stocks began their deepest plunge since the Great Depression.

___

Bernard Condon can be reached at https://twitter.com/BernardFCondon. His work can be found at: http://www.bigstory.ap.org/content/bernard-condon .

https://finance.yahoo.com/news/companies-lose-billions-buying-back-181218493.html
 

Scorpio

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#2
and the fact of the matter is, many of these used 'borrowed' money to do so,

and now their shareholders are on the hook for this for years to come, and that is supposed to be earnings acretive?

spare me the financial engineering please,
 

the_shootist

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#3
Never underestimate the stupidity of the expert businessmen
 

Scorpio

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#4
yeah shootist, that is why I have been so pissed about this crap going on in the markets, and kept trying to sound the alarm about it,
 

Goldhedge

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#5
In the old days, a company that bought back its stock was 'investing' in itself.

The stock would be worth more (supply and demand), but in today's 'new' economy the reverse seems to be true.

Up is down, in is out.

Makes you want to sit in the easy chair with your feet propped up with a beer in your hand in front of the 88" television and watch the world go by...
 

Usury

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#6
No, I think it's always been a scam. Corporations are supposed to pay dividends to the shareholders when profitable, pure and simple. Anything else is fraud. Or not much different than the gov goons that take my money cause they know what's better for it than me!
 

the_shootist

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#7
In the old days, a company that bought back its stock was 'investing' in itself.

The stock would be worth more (supply and demand), but in today's 'new' economy the reverse seems to be true.

Up is down, in is out.

Makes you want to sit in the easy chair with your feet propped up with a beer in your hand in front of the 88" television and watch the world go by...
You fucking nailed it!
 

Aurumag

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#8
Never underestimate the stupidity of the expert businessmen
It wasn't stupidity.

It was greed.

Those companies borrowed FRNs and instead of tangibly pumping up their companies, they ethereally pumped up their stock instead.

They all knew what they were doing (are doing).

Is it time to panic yet?
 

the_shootist

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#9
It wasn't stupidity.

It was greed.

Those companies borrowed FRNs and instead of tangibly pumping up their companies, they ethereally pumped up their stock instead.

They all knew what they were doing (are doing).

Is it time to panic yet?
Define panic!
 

Aurumag

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#10

the_shootist

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#11

Hystckndle

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#12
GH, you got an 88 ???

Seriously though,
A few years ago we had a purchase order with xxxxwire for building wire, just under 1 million $.
So, they send in the sales dudes, they are all talking $ by the pound, up , down, sideways etc etc. 1st in first out , vice versa. You name it. We just wanted to know the price per lft per size and logistical stuff. I mean, basic shite, sales guys aint gonna build it anyways.
So we get into the job, commit an order to them, and hystck gets peeved at some of the verbal mumbo jumbo and takes a trip to their local warehouse.
Huge place, not many people. It was odd.
Talk some more, read them riot act, they are always talking ( again ) $ per lb, spring, summer....
So, im sitting there one day and it occurred to me...
Huh....Hystckndle, you are a dumbass, these guys aint into actual product building and customer service etc etc....they might SAY they are....they are more into , I.e. have MORPHED into, commodity trading than on lroduct selling.
Same stuff as o.p. imo.
The world has changed man, business model has changed.
Scary stuff if you think to much about it.

Now....I gotta upgrade to that 88.....lol
Regards to all,
Haystack
 

Scorpio

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#13
should have told them pounds don't matter to me son, as I ain't a weighing it when I am done,
that would be for your genie weinies,

now get on with what I asked you for
 

Hystckndle

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#14
10 4 on that. Tried all that lip, they dont care anymore.
Lmao, it was a cartoon as Irons says...
Deal is, I got to listening to them and we were not talking the same language. They were, wayyyy more than they used to be, into the raw commodity language than the contractors language.
What I learned, over the period of a year, until the order was closed out, was that imho they were cool with supplying a product when they wanted to and per their terms at their pace, and they had cyphered onto their books that they were gonna sell xyz of the stuff this year for a profit of this and that but moving product had almost become a sideline....
RE : they were making , and now had the overhead and the expectations of making, wayyyy more than that original target doing what ??...yeah....the markets. Casino wise.
Market action over and beyond the basic hedging done by
all of us and the historical reasons the exchanges exist.
Honest living....never enough is it ? Always gotta make it into a casino.
Talk later. I gotta put some new project stuff onto the " cloud ".
Yet another thing I think is gonna get worse.
 

Scorpio

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#15
I hear ya, and it seems to be even worse with specialty items, where they know you are limited in options or suppliers,

then the games really get rolling on promises vs actual, etc.
 

REO 54

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#16
Buybacks Must Continue: AAPL, IBM Unveil Major Debt Issuance To Fund Shareholder-Friendliness:

With investment grade credit risk soaring, it's now or never for many firms to lever up at "relatively" low costs and two of the biggest buyback-ers are stepping up to the debt issuance window this week. Perhaps helping to explain the carnage in Treasuries at the end of last week (as rate-locks are set), Apple has unveiled a 10-part deal which could price today and IBM a 7 part deal. No size is indicated yet but Apple's previous two issuances were $8bn and $6.5bn.

As the cost of funding buybacks rise, so the window is closing for releveraging on the cheap...





Apple sold $8b debt in 7-part offering in May 2015; $6.5b debt in 5-part offering in Feb. 2015, and so it is time for some more monetization of that overseas cash... in as many as a 10-part deal...

IPT:

  • 2Y fxd +75a; 2Y FRN 3mL equiv
  • 3Y fxd +90a; 3Y FRN 3mL equiv
  • 5Y fxd +115a; 5Y FRN 3mL equiv
  • 7Y green bond +145a
  • 10Y fxd +160a
  • 20Y fxd +200a
  • 30Y fxd +215a
SEC Registered
Expected Issue Ratings: Aa1/AA+
UOP: General corporate purposes, including repurchases of Apple’s common stock and payment of dividends under the company’s program to return capital to shareholders, funding for working capital, capital expenditures, acquisitions and repayment of debt; the company intends to use the net proceeds from sales of the 2023 Fixed Rate Notes for the investment in one or more eligible projects
Bookrunners: BofAML, DB, GS, JPM
Settlement: T+5 (Feb 23, 2016)
Denom: 2,000 x 1,000



And IBM a 7-part deal...

IPT:

  • 18-month FRN 3mL+55a
  • 3Y +95a; 3Y FRN 3mL equiv
  • 5Y +115a; 5Y 3mL equiv
  • 10Y +180a
  • 30Y +215-220
SEC Registered
Expected Issue Ratings: Aa3/AA-
Bookrunners: BNP, Barclays, C, JPM
Denoms: 100k x 1k
Use of Proceeds: GCP

Notably, both IBM and AAPL have seen their credit risk almost double in the last year...




http://www.zerohedge.com/news/2016-...major-debt-issuance-fund-shareholder-friendli

 

REO 54

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#17
Saw this over at Reuters. Thought it was a good point of view to share.....


Federal Reserve playing with fire on bank capital:

By Antony Currie and Gina Chon

The authors are Reuters Breakingviews columnist. The opinions expressed are their own.

The Federal Reserve is playing with fire on bank capital. The U.S. watchdog is allowing Capital One to buy back $300 million more in stock than was initially permitted under the most recent Dodd-Frank Act stress tests last year. That’s good news for lenders, but singes the central bank’s reputation for toughness.

The buyback won’t put Capital One in danger of being undercapitalized. It represents around 0.11 percentage points of risk-weighted assets, according to Evercore ISI, and the bank passed last year’s stress test with a level of capital reserves more than 3 percentage points above required minimums. The purchase also fits squarely within a loophole that allows banks to increase buybacks under certain conditions.

What’s more, the bank can now snap up stock at just 75 percent or so of book value. That’s because recent fears about the U.S. and global economic outlook have sent lenders’ shares into a tailspin. The KBW Bank Index has fallen 17 percent so far this year, even after factoring in a 7 percent recovery in recent days.

Of course, splashing out cash in these amounts requires confidence in a bank’s prospects. JPMorgan boss Jamie Dimon has long argued that the best time for a bank to buy back stock is when it’s at or below book value. Last week, he put his own money where his corporate mouth is by purchasing more than $25 million worth of his company’s stock.

The Fed should not be too keen, though, to accommodate a bank buying spree. The whole point of the stress tests is that they monitor earnings and balance sheets over a longer time frame than just a few weeks. What’s more, the next set of stress tests, along with the determination of how much capital banks can return to shareholders over the next 12 months, are due out in just a few weeks.

Perhaps Capital One and others are making the case that they need to buy back stock now, before its value suddenly rallies. That’s a good argument, though, for the Fed to hold off on any further loosening of the rules.


http://blogs.reuters.com/breakingviews/2016/02/18/federal-reserve-playing-with-fire-on-bank-capital/
 

Ensoniq

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#18
This is a topic where I was completely incorrect in my opinion before I came to this site. Learned a lot about this scam here

Now I see stock buyback as nearly akin to monetizing debt