Before the potential 1% tax, stock buybacks surged to record: company buying because insiders dumped like there was no tomorrow


Yves came. The interesting thing is that companies are buying back shares to facilitate momentum trading, rather than lowering hypothetical or actual faltering prices.

In my young Stone Age, financial economists recorded that companies were good at selling stocks when prices rose. Times have changed.

Wolf Richter, editor Wolf street. Originally published on Wolf street

According to preliminary estimates by S&P Dow Jones Indices, companies in the S&P 500 Index repurchased a record $234.5 billion in their own stock in the third quarter of 2021, but they were generally at the top, breaking the previous record of 2230. Billion dollars in stocks. The fourth quarter of 2018. According to the Wall Street Journal quoting Howard Silverblatt, a senior index analyst at Standard & Poor’s Dow Jones Indices, there will be more in the future: the repurchase in the fourth quarter will set a new record of $236 billion. He Say.

Previously, the House of Representatives passed the “Rebuild Better” bill passed by the House of Representatives on November 19 and proposed a 1% tax on stock repurchases. Now it has been shelved in the Senate. The tax did not trigger other measures in the anti-storm bill.

Buy high.Don’t buy low.

These repurchases took place after stock prices soared in a historic manner. Previously, the Fed and other central banks had historically unscrupulously printed money, and in the face of scorching and deteriorating inflation, they had historically suppressed interest rates recklessly.

But please note that after the stock price plummet, the repurchase amount fell to US$89 billion in the second quarter of 2020 and to US$102 billion in the third quarter of 2020. This is based on the company’s strategy of buying high when the stock price is already high to further push up the stock price, rather than buying when the stock price is low.

When prices are high, this is also when insiders sell stocks. As they do now, it is more important for the company to buy back stocks sold by insiders.

How big a difference would a tax of 1% be?

Microsoft announced in September that its board of directors had approved another round of $60 billion in stock repurchases. A 1% tax on it would cost Microsoft $600 million-not a big deal for a company the size of Microsoft. But it should not be underestimated.

But if the company can complete the repurchase before the tax takes effect, if it goes into effect, it will save $600 million while reabsorbing the stock that its executives are dumping.

When executives sell like there is no tomorrow, these buybacks are very effective: For example, on the Wednesday before Thanksgiving, Microsoft CEO Satya Nadella sold more than 50% of Microsoft stock A large number of transactions were carried out in just one day. But because Microsoft itself is busy repurchasing shares, the stock has hardly changed. By Friday, December 10, the stock price closed near its pre-sale high.

What does it mean that executives dump their stock when the company is buying back shares?After the huge parabolic rise in stock prices, the largest money printing frenzy and interest rate suppression in history are now in trouble. The subsidence of inflation Which monetary policies have contributed? That is a rhetorical question.

Since the beginning of 2012, S&P 500 companies have repurchased nearly US$5.68 trillion of their own stock. A 1% tax will cost them US$56.8 billion in additional costs.

In the past four quarters, S&P 500 companies have repurchased $742 billion of their own stock. A 1% tax will add 7.2 billion US dollars in additional costs. Not big. But most of them will be concentrated on the 20 companies that have repurchased the most shares.

Buy back new members of the Hall of Fame

Hertz Global Holdings-came out of bankruptcy this year, and then held an initial public offering, providing a way for private equity companies that bought it from bankruptcy to sell their shares-announced in November that it would repurchase it worth 2 billion U.S. dollar stocks, even though private equity firms are unloading their shares.

The announcement was made after other announcements aimed at manipulating its stock price so that these stakeholders can make more money when they sell their shares.

The most shining trick was the announcement on October 25, when Hertz stated that it had reached an agreement with Tesla to purchase 100,000 Teslas, causing its stock price to rise by more than 10%.At the time, I called the announcement “Hertz’s’selling shareholder’ and Tesla’s publicity coup. “A week later, Musk said on Twitter that no agreement was reached because “no contract has been signed yet.”

Hertz will manipulate its stock price at all costs to allow “sale shareholders” (ie, private equity company groups) to maximize profits when they sell shares. Despite these hoaxes, the stock price has fallen, but without these hoaxes, the stock price would have fallen even more, from a high of $35 per share after Tesla announced the close to $24.92 on Friday.

Another new member entering a large stock repurchase group is Dell, which announced in September that it would repurchase $5 billion of its own stock.



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