President Trump: The NEW one and only politics thread

Honestly, stock buybacks are at record levels (more than $1 trillion this year, but it may be starting to tail off) -- over the last 5 years, it has gone berzerk and driven up stock values -- but it has much less to do with the recent tax incentives than that tweet would have people wrongly believe. Most of it has been on the back of borrowed money, not a tax boon, because interest rates have been negative (in real terms) on the back of what the Federal Reserve did to destroy the credit markets since 2009. It created huge misallocations of capital. So you have a small handful of companies, like Apple or Facebook, which are flush with cash and have bought trillions of dollar of their stock. But they are the exception, not the norm. You have way more companies, like GE and IBM that have borrowed money at no cost, and racked up billions upon billions of dollars of debt buying back their own shares over a period of several years. As the asset bubble we are now in ran up, they essentially put themselves into more and more debt to overpay for their own stock. The bubble feeds more bubble.

Right now, central banks around the world are just beginning to try to suck some of the liquidity they pumped in out. They won't be able to without creating a debt crisis. And if they backtrack, it is going to take something way more radical to create more and more leverage to put off the day of reckoning. Right now, they are still delusionally trying. Yesterday, the European Central Bank announced that it is ending its quantitative easing program (they have been tapering their asset purchases) -- after buying up $2.5 trillion (euros) of assets to keep yields down and try to pump up asset prices. The U.S. Federal Reserve is ahead of them and has been letting expiring bonds roll off its balance sheet for almost a year, but at a snail's pace. Just the small bit of removing liquidity has been what is causing markets to roil. The Fed still has a balance sheet of about $4.1 trillion in assets that it overpaid for and it won't be able to extricate itself of it without a mess.With bond prices having come down slightly (and yields having slightly gone up), the Fed is actually insolvent now on paper -- although unlike an insolvent hedge fund (which is what it turned itself into), it can just press a button and create money (and inflation) out of thin air (which is how it screwed us all and created an overleveraged world in the first place).

At the end of the day, what this is going to leave us with is a debt crisis and a lot of companies having way overpaid to buy back trillions of dollars of their own stock in return for crippling debt AND sinking stock prices. That is where we are headed.

The tax cuts played a small role, but it wasn't the primary driver. Not nearly as much money was repatriated as they projected and promised, and therefore, it hasn't been as huge a driver of buybacks as that tweet would suggest. Some, but it pales in comparison to the amount of Fed-created debt (trillions of dollars) that has actually fueled all of the buybacks. Yes, if you repatriated money you got some tax amnesty from the U.S. But companies were finding that they were going to get punished on the front end by the foreign locations they were repatriating from, so it didn't make sense to bring the money back to the U.S.