At the start of the year, when the impact of Trump's offshore cash repatriation holiday was just being felt, JPMorgan made a daring forecast: it predicted that buybacks in 2018 would hit a record $842 billion, a number that would put any prior year's total to shame. It also meant that as corporations themselves emerged as the biggest buyer of stocks in 2018, it would require an avalanche of selling to push the market lower.
More recently, when looking at its client trading activity, Bank of America made another surprising observation: in the first half, corporations were the only net buyers of stocks (with the only exception of companies in the Industrial sector), as institutions and hedge funds have been net sellers throughout 2018.
And while we were originally skeptical that JPMorgan's forecast would be validated, the latest official data blown all our skepticism out of the water.
According to TrimTabs, Stock Buyback Announcements swelled to a record $436.6 Billion in the second quarter, smashing the previous record of $242.1 billion set just one quarter earlier, in Q1. Combined, this brings the first half total at a ridiculous $680 billion, or just $160 billion less than JPM's full year forecast. Annualized, this number amounts to $1.35 trillion, an absolutely staggering number.
Putting the Q2 number in context, TrimTabs writes that "the amount of money committed to buybacks last quarter could fund 6.8 million $1,000 bonus checks to workers every single trading day."
Some more details:
Apple announced a $100 billion buyback on May 1, the largest repurchase ever by a U.S. public company. In addition, 19 financial companies announced a total of $112.2 billion in buybacks after the release of the Federal Reserve’s latest “stress test,” led by too-big-to-fails Wells Fargo ($24.5 billion), J.P. Morgan ($20.7 billion), Bank of America ($20.6 billion), and Citigroup ($17.6 billion). Sixty-three companies announced buybacks of at least $1 billion last quarter.
Furthermore, this historic spending spree on share buybacks has some analysts worried companies are buying their shares at excessive valuations during the peak of the economic cycle and at a time when the market rally is nine years old, but to executives who get to reap the immediate benefits of these buybacks, often by selling into them, none of this matters.
Next TrimTabs echoes what two Harvard professors recently wrote was the "real problem with stock buybacks", namely how they systematically transfer wealth from shareholders to executives, and writes that "corporate America’s actions suggest that most of the benefits of the corporate tax cut will flow to investors in general and top corporate executives in particular. Most top executives have large stock-based compensation packages, and stock buybacks use shareholders’ money to prop up stock prices."
That much has been known for years, and yet Congress refuses to step in and end this systematic looting because...