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$500 Billion In 2013 Corporate Buybacks: Half Of QE

Tyler Durden's picture





 

Everyone knows that the Fed, through the bank excess reserves/cash deposit pathway, participated in indirectly purchasing some $1 trillion in risk assets in 2013 through POMO - a process that many have confused with economic recovery. It is also known that corporate stock buybacks have managed to keep S&P500 EPS rising by removing the total number of shares outstanding (and thus lowering the S in EPS in a world where absolute E stubbornly refuses to grow): after all, someone has to keep those activist shareholders happy or else they release unpleasant letters about corporate CEOs.

However, what may not be known is just how large the total amount of corporate buybacks in the past year was. The answer: the second highest in history, just shy record of 2007 (when there was no additional $1 trillion in stock purchases coming from the Fed/Primary Dealer complex), amounting to $500 billion (even if non-US buybacks have been a tiny fraction of US).

Presented otherwise, corporations injected roughly half of the total POMO cash used by the Fed to push the S&P straight-line higher.

For the sake of stocks, and with QE tapering, let's hope that this critical buyer remains in the market or else the tapped out retail investor may have a tough time to keep the S&P at its now more expensive than 2007 level for long.

 


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Mon, 01/06/2014 - 09:48 | Link to Comment yogibear
yogibear's picture

The only thing that would put fear in the Fed is an uncontrolled free-fall in the US dollar. A loss in confidence in the US dollar would cause the Fed to loose all control.

Bank and market holidays. Demographics is game changer.

Mon, 01/06/2014 - 09:54 | Link to Comment GrinandBearit
GrinandBearit's picture

Via...

1. Chinese gold backing of their Yuan.

2. Losing control of the US bond rates.

Either one, or both.  

Mon, 01/06/2014 - 09:50 | Link to Comment Colonel Klink
Colonel Klink's picture

Just remember as share dilution is reduced to make things look better, margin compression and lower sales will be amplified.

@YOGI - It's LOSE!

Mon, 01/06/2014 - 10:01 | Link to Comment Headbanger
Headbanger's picture

Oh great, now the corps can sell all those shares they bought back at a much lower price.  Makes sense huh? 

And they're such geniuses that they did it again after buying back so much before in 2007!

Mon, 01/06/2014 - 10:02 | Link to Comment Colonel Klink
Colonel Klink's picture

They'll just wait for the greater fool to come along, whether that's a buyer of the stock or company.

Being a corporation means never having to say you're sorry.

Mon, 01/06/2014 - 10:25 | Link to Comment Headbanger
Headbanger's picture

Tylers:   Please update this one on corporate leverage being used for buybacks.

http://www.zerohedge.com/news/2012-11-21/where-levered-corporate-cash-si...

Thanks!

Mon, 01/06/2014 - 11:49 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

To really see the impact of this, do some multi year research on Home Depot.

Profit down, EPS up, stock up.  The company is shrinking.

Mon, 01/06/2014 - 10:14 | Link to Comment new game
new game's picture

actually a case could be made that the buyback is like handing money to the officiers via option plans.

cash into shares>shares to officers>sale of shares>cash thru the corp to select few. some taxes paid.

Mon, 01/06/2014 - 10:24 | Link to Comment Stuck on Zero
Stuck on Zero's picture

Corporate officers do not care about long-term consequences.  They want their huge bonuses this year.

 

Mon, 01/06/2014 - 11:14 | Link to Comment andrewp111
andrewp111's picture

Correct. Stock buybacks merely compensate for the extra shares handed out as part of executive compensation, and allows the float to remain constant or decrease slightly. It is nothing more than indirect insider compensation, and is taxed at a lower rate than direct salary.

Mon, 01/06/2014 - 11:51 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Nope.  Shares outstanding are in freefall.  Look at home depot.  Executive issuance does not offset the sheer number of shares bought back.  Total shares outstanding is falling.

Mon, 01/06/2014 - 09:52 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

To the moon Alice.

Mon, 01/06/2014 - 09:56 | Link to Comment Colonel Klink
Colonel Klink's picture

And by moon you mean crater, right?

Mon, 01/06/2014 - 10:17 | Link to Comment Gromit
Gromit's picture

Judge Crater?

Mon, 01/06/2014 - 10:23 | Link to Comment Colonel Klink
Colonel Klink's picture

More like Jimmy Crater!

Mon, 01/06/2014 - 09:55 | Link to Comment GrinandBearit
GrinandBearit's picture

And it will be some fun to watch it all collapse.

Popcorn and recliner is all ready.

Mon, 01/06/2014 - 09:56 | Link to Comment firstdivision
firstdivision's picture

If you think that'll be fun, wait for the BitCoin reaction. 

Mon, 01/06/2014 - 10:03 | Link to Comment Colonel Klink
Colonel Klink's picture

Does that mean people will be jumping from their Windows, or whatever OS they're using?

Mon, 01/06/2014 - 10:26 | Link to Comment MTAR
MTAR's picture

Hopefully in your bunker or cabin in the woods far from the city ;) hungry people turn nasty.

Mon, 01/06/2014 - 14:32 | Link to Comment SAT 800
SAT 800's picture

Really. one thing you can say for sure is that this process can't continue indefinetly. How can a market propped up by corporate share buy-backs be an investment vehicle for the public? it's not a stable situation; everyone knows the buying will slow; then what?

Mon, 01/06/2014 - 09:52 | Link to Comment firstdivision
firstdivision's picture

We're approaching the top.  Feels like we are actually at the top with the indexes ranged where they are. 

Mon, 01/06/2014 - 09:58 | Link to Comment GrinandBearit
GrinandBearit's picture

Agree, but there is still room left for the market to run.  We did not have a blow-off top yet. 

The Fed has not played all of their cards yet either.  The desperation has not set in.

Mon, 01/06/2014 - 10:53 | Link to Comment ghostzapper
ghostzapper's picture

Here's how I see it for now based on the charts (tentatively I emphasize in this Twilight Zone):

- potential correction here about to get underway down to 1650ish by Aprilish

- rockets higher from there to 2150ish

From there just have to see how things look.  I do expect at some point the mother of all blow off tops, an absolute orgy of momo-monkeys blow off tops.  Who knows maybe it takes it above 2500 or even higher.  The next crash in my view is most likely the final crash.  

 

In order for the correction to occur early this year I would need to see a strong, quick, violent move down relatively soon.  if not who knows it's all bullshit anyways.  

Mon, 01/06/2014 - 09:56 | Link to Comment _ConanTheLibert...
_ConanTheLibertarian_'s picture

You know, one day the FED will own everything, which then will mean there will be no buyers left. The stock market will have to crash sooner or later. FUCK YOU ASSHOLES!

Mon, 01/06/2014 - 10:00 | Link to Comment Colonel Klink
Colonel Klink's picture

There are no markets, only Felon Yellen.

Mon, 01/06/2014 - 10:33 | Link to Comment MassDecep
MassDecep's picture

"You know, one day the FED will own everything"

 

That day is here my friend.....

Mon, 01/06/2014 - 11:53 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Why do you guys care?

Don't trade.  Simply that.

You know GODDAMN well if you went out and bought farmland you will not regret it in 20 years.  So why don't you?

Mon, 01/06/2014 - 10:02 | Link to Comment Rainman
Rainman's picture

The whole equities pricing scam looks like a big bag of Cheese Puffs, half full of hot air at a jacked-up price .

Mon, 01/06/2014 - 10:01 | Link to Comment Colonel Klink
Colonel Klink's picture

The weeping cheese puff approves this message.  Now back to fucking the American taxpayers, and caving to the other side.

Mon, 01/06/2014 - 10:06 | Link to Comment Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Who needs capex, highly over rated.

We live in a virtual world now, don't we?

Besides we have too much over capacity anyway.

The way out? Boom. Not pretty.

When virtual meets real, ouch.

Mon, 01/06/2014 - 10:13 | Link to Comment ptoemmes
ptoemmes's picture

So,

1) The only way buybacks could be "funded' in 2013 (and 2012, 2011, 2010, ad nauseum)  was with 50% of QE - cue stock market ramps

2) The other 50% of QE went to bonuses, perks, etc for doigjn such a good job on 31 - maybe?

 

/sarc off (just in case)

 

Pete

Mon, 01/06/2014 - 10:25 | Link to Comment Colonel Klink
Colonel Klink's picture

Sounds about right but you forgot government bribes (AKA - campaign contributions) and corporate fines for criminal behaviors without admitting wrongdoing.

Mon, 01/06/2014 - 10:23 | Link to Comment new game
new game's picture

maybe inflation is leaking out via the top 10 percent getting a tad concerned and putting it elsewhere.

demand side is shakey with flat income of 90 percenters. this has to correct unless the new norm has reset pe's too...

Mon, 01/06/2014 - 10:25 | Link to Comment gwar5
gwar5's picture

Are lots of insiders selling or holding?

 

 

Mon, 01/06/2014 - 10:28 | Link to Comment Colonel Klink
Colonel Klink's picture

Oh, oh, I know this one.....SELLING!

Mon, 01/06/2014 - 10:34 | Link to Comment new game
new game's picture

agreed-the great transfer of wealth goes on and on.

prices of real estate in london, NY and san fran at all time highs.

like another fucking world...haves and have fucking nots

are you getting a tad pissed how the money creaters get most of it?

but this cycle has moved manufacturing to the other side of the world. next on deck is a robot replacing your shitty job...

i'm safe for a while cause i fix things and keep them running...

 

bitch, bitch, bitcheez

Mon, 01/06/2014 - 10:42 | Link to Comment Colonel Klink
Colonel Klink's picture

Holy shit, something I can actually up arrow you on!  Who knew!!

I'm sure those people in London, New York, and San Fransicko take the standard deduction though. (Sorry couldn't resist)  Mea Culpa!

Mon, 01/06/2014 - 10:59 | Link to Comment new game
new game's picture

lol, got have a sense of humor:)

Mon, 01/06/2014 - 10:39 | Link to Comment Took Red Pill
Took Red Pill's picture

BUY BUY BUY!

or is it BYE BYE?

Mon, 01/06/2014 - 10:38 | Link to Comment Ban KKiller
Ban KKiller's picture

The grand experiment continues. Don't worry, the police are well trained and armed to protect the elite....l mean Banksters.

Mon, 01/06/2014 - 10:56 | Link to Comment Rising Sun
Rising Sun's picture

Buying back your own shares at/near a market top.  Now there's value.

 

Something fucking ugly is around the corner.

Mon, 01/06/2014 - 11:14 | Link to Comment andrewp111
andrewp111's picture

It is indirect insider salary. Corps issue free shares to insiders, and then buy them back to reduce the float.

Mon, 01/06/2014 - 11:03 | Link to Comment ThirdCoastSurfer
ThirdCoastSurfer's picture

Highly underdeveloped thesis:

PSO 2012 2011 2010 (in thousands)
Common Stock 332,000 317,000 318,000 
Treasury Stock 167,000 232,000 214,000

Doing a little "Due Dilegence" on a company today, I came across these two rows of their balance sheet - a subject that peeves me.

The purpose of stocks is to provide companies with capital. Shareholders are just bagholders. If you ever hear someone championing an increase "Shareholder Wealth", just remember that no such category exists on a balance sheet. Of course, another term for capital and wealth is cash.

Treasury stock are the those shares that the company holds in reserve.

While "stock buybacks" are readily announced, the actual execution is not mandatory and stocks routinely get a boost at announcement to their stock price under the anticipation of it's execution -whether it happens or not.

So, with that crude prep, examine the totals listed above for the last 3 years of PSO. The amount of stock availble for trading, or "the float", is Common Stock less Treasury Stock and the results are: 
2012 2011 2010 (in thousands)
165,000 85,000 104,000

So clearly, in 2011, common stock dropped by 1m, treasury stock increased by 18m and the float increased 19m; but then, in 2012, common stock increased by 15m, treasury stock dropped by 65m & the float decreased by 80m. The net difference in float then between the two years is a negative 61m. This raised the capital surplus (the profit derived from the sale and purchase of stock) by $159 million & dropped the category called "other stockholder equity" by $358m. Capital surplus and other total to $517m

You'll see in the attached video that the announcer promptly ends the it with a long disclaimer after announcing that a company with more "other" than "revenue" should be categorically avoided, but does not explain why or chose as an example a company that has or is close, like PSO, who's 2012 revenue was $525m. 

Now one would assume that this is some kind of insider stock trading, like the privilege that member's of congress have had for so long that we just recently discovered, while this is hiding in plain sight. Year after year the total amount of stock at issuance and stock "in play" rising and falling like a tide in synchronicity with an object, but the objections to this notion are loud and vociferous and filled with red flag absolutes like "never" and "impossible". 

Thing is, because of my once not so privileged position, I came to know of secret black ops rooms within corporations that few other employees were aware of or, more commonly, outsourced entities who duties were to "buyback" or "issue", aka "buy", "sell" or "hold". 

My concept of the stockmarket is a not of a pyramid scheme, but a pyramid loop. Retail investers, known as "dumb money" have no access to the activities of black ops and are readily identifiable by the exanges and brokerages they come from. Another concept is that dumb money is also scared money in that they watch the stock too closely and can easily be forced into positions of a margin call. If dumb money is buying, issue more stock. If selling, commence a buyback. This, by itself, only serves to moderate the market price, but, here's where the "smart money" comes in. Smart money, in the same way they can see what dumb money is up to can also see the activity of what the corporation itself is up to.

http:www.youtube.com/watch?v=gcVF5BAS2b8&feature=share

Mon, 01/06/2014 - 15:44 | Link to Comment Basilian
Basilian's picture

In short are you saying that all these groups (corporations and commercial banks) are using Zero percent money (FREE money) from QE (tax payers) to buy their own stock back? So they are making the market look healthy by putting the tax payers and future tax payers of this country in debt and calling it capitalism, free markets and creation of markets?

Should your healdine say MASSIVE THEFT OF THE US CITIZENS BEING ALLOWED BY THE FOLLOWING INDIVIDUALS: a,b,c,c,d,e,f,......... they all have names and addresses don't they?

Mon, 01/06/2014 - 12:41 | Link to Comment Shizzmoney
Shizzmoney's picture

This will be in the chapter of Bernanke's text book on Central Banking, called: "How to Manipulate Stock Markets and Participate in Asset Allocation via Proxy"

Mon, 01/06/2014 - 12:43 | Link to Comment Colonel Klink
Colonel Klink's picture

Probably not, but one can only hope there's a chapter like that in his indictment!

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