While there is still some fringe debate what companies will do with the hundreds of billions in offshore funds repatriated to the US as part of the recently passed Trump tax reform, the discussion is largely over, especially after last week's Cisco results. The company, which has $68 billion of overseas cash, third after AAPL and MSFT, announced that it would raise its buyback authorization by $25 billion, and revealed plans to repurchase its entire authorization of $31 billion during the next 6-8 quarters, equal to roughly 15% of its current market cap.
Call it a partial LBO, courtesy of Donald Trump.
Flush with cash after the Republican tax cuts, Cisco announced on Wednesday that it was building gleaming factories across the US, employing hundreds of thousands of workers to make the latest cutting-edge routers.
Sorry, of course not. The money is going back to shareholders.
Don't believe it? Here's what Goldman's David Kostin said in his latest Weekly Kickstart report:
Since December, S&P 500 firms have announced buybacks totaling $171 bn. YTD announcements of $67 bn represent a 22% increase versus the same period in 2017. The buyback window has re-opened and firms are taking advantage of the recent correction; the GS Buyback Desk reported that last week was the most active week in its history.
The $171 billion in YTD stock buyback announcements is the most ever for this early in the year. In fact, it is more than double the prior 10 year average of $77 billion in YTD buyback announcements.
Incidentally, the record burst of stock buybacks was arguably the key driver behind last week's miraculous stock rebound.
"It acts as a floor, you have a natural buyer in there," Birinyi's Jeff Rubin told CNBC. "At the end of the third quarter, companies had dry powder of over $800 billion," he said. Fourth quarter actual purchases are not yet available.
Rubin said this year became the largest with the latest rush of buybacks in the last two days, including Cisco and AMAT with $6 billion.
"There's a whole stock pile of cash that just came back. Take Cisco. We know they had $68 billion trapped overseas, and they're going to take $25 billion of that and buy back stock," said Art Hogan, chief market strategist at B. Riley FBR.
B. Riley's Art Hogan doubled down saying that "the buyback news should be good for the market."
"If they're going to use it judiciously I think it's going to be great. You're either going to be paying a dividend, buying shares, or you'll find something accretive like an acquisition or investing in your business," said Hogan. "When CEOs are asked about it, it's all of the above and buybacks are in there. It helps drive earnings even higher than what our earnings estimates already are for 2018," said Hogan.
Finally, putting the number in context, according to JPM the amount of announced buybacks just in the first 6 weeks of 2018 is already greater than all of 2009... which of course is when companies should have been splurging on stock repurchases.
Finally, in addition to what we first pointed out over two years ago, namely that all net debt issuance in the 21st century has been used to pay for stock buybacks...
... here is what John Hussman commented on this record last hurrah in stock buybacks: "Though buybacks are primarily debt-financed, they are also highest at market peaks, and contract sharply at major market troughs. Corporations are still borrowing to buy the dip at peak valuations, within a few percent of extremes associated with prospective 10-12yr market losses."