President Trump: The NEW one and only politics thread

Stock buybacks (and dividend raises) are what have juiced the stock market over the last decade of zero interest rates and central banks expanding their balance sheets into the 10s of trillions of dollars to keep credit flowing. Earnings over the last 2 quarters have been amazing relative to the same quarter the year before. But earnings as a whole are not much beyond where they were in 2013. Yet stock multiples have expanded dramatically -- on the back of stock buybacks, in large part. A lot of companies have availed themselves of cheap money fresh from the central banks which are debasing their currencies to extremes we have never seen before, and those companies have largely used that money not for capital expenditures, but to financially engineer higher stock prices. This is the misallocation of capital that central banks cause. In their wake. ... we have overleveraged corporate balance sheets loaded with debt which was used to buy back their own stock at overpriced levels (because the buybacks create artificial demand that investors front run, and it causes asset bubbles in which prices get out of whack relative to normal fundamentals).

All of that said, I don't like that tweet. Even if the buyback binge is artificial, it is what it is. And that money belongs to the owners of McDonalds and CVS. Not to the workers. However the companies come into that money, when they do stock buybacks, they are returning that money to the owners of the company. That is the benefit of owning a company. You are entitled to any cash the company throws off (or consequently, you can choose to invest any excess cash instead on capital expenditures to try to grow your business, something there has been very little of, given that economic growth has been stagnant for the last decade).

There is a downside to business ownership too. If the company loses money, as an owner you are on the hook for those losses. The cash you see -- whether it is a dividend, stock buybacks, etc. is your reward for having taken the risk of business ownership. That risk often comes with a cost, especially in the form of potential capital depreciation.

A worker for those businesses has no claim to that cash or the business itself. They are contracting their services for a wage. Nothing more, nothing less.