The buyback backlash is gathering steam… Even Republicans want to soak the rich… Win-win capitalism is dying… In the mailbag: “It’s always easy to convince people they can get something for nothing”…
That’s how much U.S. companies spent on buying back their own shares last year.
This is on top of the $4 trillion they spent on buybacks between 2008 and 2017.
And as we’ll show you today, it’s turning them into a political football in the war on wealth we’ve been warning you about.
You may think this doesn’t affect you. But if you own any stocks… or care about preserving your financial freedom… you’ll want to take a closer look…
When a company decides to spend its profits on buying back shares, its aim is to cancel them.
This reduces the number of outstanding shares. And it boosts the portion of company profits represented by each remaining share.
In Wall Street jargon, buybacks boost a company’s earnings per share (EPS). And when EPS jumps… stock prices tend to jump, too.
Like dividends, buybacks are a way of putting more money in shareholders’ pockets.
And although I’m sure we can agree this is a good thing, it’s made them a target in the war on wealth.
Last year, Wisconsin Senator Tammy Baldwin proposed banning buybacks outright.
And in an op-ed in The New York Times earlier this month, Vermont Senator Bernie Sanders and Senate Minority Leader Chuck Schumer added their support. As they put it…
When corporations direct resources to buy back shares on this scale, they restrain their capacity to reinvest profits more meaningfully in the company in terms of R&D, equipment, higher wages, paid medical leave, retirement benefits and worker retraining.
And it’s not only Democrats who say buybacks are bad. Republicans are getting in on the action, too.
On Tuesday, the former presidential hopeful said he’d tax buybacks to make them a less attractive option for CEOs when it comes to figuring out what they do with their profits.
And he says he’ll be introducing a bill next week to do just that.
Echoing Baldwin, Sanders, and Schumer… Rubio claimed on Twitter that curbing buybacks would “drive the creation of jobs & increase in wages.”
We understand the sentiment.
As Legacy Research cofounder Bill Bonner has been telling his readers, folks in America are suffering from what he calls a “Hidden Depression.” Bill…
In the bottom half of the U.S. population, 117 million adults earn an average annual wage of $16,000 a year.
These people are worse off than they were at the end of the last century… and probably worse off than they were when the Fake-Money Era began in 1971.
CEOs have two basic choices about where to deploy profits.
They return money to shareholders – either through buybacks or dividend payments.
Or they make investments that grow their business. They may go out and acquire other companies, or they can spend that cash on research and development.
Wages, on the other hand, are set by supply and demand in the labor market.
If there are only three workers who know a certain skill… and there’s high demand for that skill… they’ll be able to demand a high wage.
If there are millions of workers who know that skill, each one will have little or no bargaining power.
That’s just how free markets work.
They could instead harness its power.
Over the long run, owning stocks is a great way to build wealth.
If politicians believe stock buybacks are making shareholders wealthy, why not focus on getting more people to take up their 401(k) retirement accounts?
That way more people would own stocks.
And when companies reward shareholders by returning profits to them via buybacks and dividend payments, more people would be able to benefit.
According to figures from the U.S. Census Bureau, 4 out of 5 Americans work for companies that provide 401(k)s or other similar tax-deferred retirement accounts.
But two-thirds of Americans aren’t putting money into their 401(k) – mostly because they don’t know the 401(k) exists… they haven’t gotten around to filling out the paperwork… or they’re confused by the investment decisions.
This won’t play as well with folks who want to soak the rich. But it would be a much better way of making sure there’s a more equal distribution of the wealth “pie” than banning buybacks.
It’s about the death of win-win capitalism.
Bill’s coauthor on The Bill Bonner Letter, Dan Denning, has been keeping track of America’s drift away from free markets and individual liberty… and toward greater government control of markets and society.
Here’s Dan with more…
America has been getting more socialist for the last 100 years. I’d cite 1913 (the creation of the Federal Reserve)… 1933 (Executive Order 6102 confiscating gold)… 1971 (Nixon taking the U.S. dollar off gold)… and 2008 (Quantitative Easing) as the four major “inflection points.”
All four events amounted to ways of taking control of money to create wealth and political power for the elite. And now we can add a fifth – the increasing calls to soak the rich. Whether that’s by way of higher taxes… or a ban on buybacks.
Call it socialism. Call it financial martial law. Call it the death of win-win capitalism. It’s all the same. And it’s coming faster than you think.
If Dan is right, this is bad news… especially for folks with modest amounts of money in the stock market.
That’s why he’s been urging his readers to “de-financialize” their lives – aka, move some money out of stocks and into tangible assets.
You can read more on that from Dan here.
If you’ve been keeping up with our mailbags, you know there’s no shortage of opinions about the rise of socialism in America. Here’s the latest batch…
The leaders/proponents of socialism aren’t really socialists. They are, in fact, power-crazed wannabe dictators. They just use socialism as a cover to gain a following. It’s always easy to convince people they can get something for nothing.
Of course, the followers are quickly forgotten as soon as the wannabe dictators have the power they sought.
– Roger K.
The greatest problem is the ignorance of our citizens. For example, few citizens see how the aggressive taxing system ruins things financially. Taxing aggressively reduces spending, especially at the top end of the scale.
Many believe there’s nothing wrong in preventing some ‘richie’ from purchasing a Tesla, but they don’t realize the jobs that such taxation eliminates. Not just folks at the Tesla plant but those subcontractors who provide many of the parts, plus those who work at the refineries producing materials for batteries, metal parts, etc., and many more other jobs. High taxes are like choking oneself.
I firmly believe that there are two Key Plans in our existence. There’s Plan A, where we are free to choose for ourselves what we do and how we do it (as long as it doesn’t interfere in anyone else’s right to choose for themselves). Then there’s Plan B – those folks who believe they have the ultimate knowledge of the Right Path want to be in charge and force us to make the Right Decisions, and any impact on us is irrelevant.
Our society is clearly moving more and more to Plan B. Socialism is part of Plan B.
The early history of the United States clearly shows how Plan A really works and that everyone benefits and learns how to succeed in life (despite the many Plan B’ers even back then – such as Lincoln and others). Unfortunately, the Plan B leaders are selfish and only care about taking advantage of the rest of us.
– Mike R.
Does it really matter? We have reached the point of no return, from debt that can never be paid off to a lack of privacy in our surveillance society that makes Orwell’s 1984 look like the good old days!
– Don K.
And one angry reader wants us to steer clear of politics altogether…
I think you need to stay out of politics. Or are you getting into politics because you’re stumped on the financial side of things, because you don’t know what to do and you have to fill up space in these long say-nothing essays? Your political thoughts are biased and very shallow – and unappreciated.
– Kathy K.
Has America reached the point of no return, as Don K. says? Should we shut up when it comes to politics?
Send us your thoughts to [email protected]. We love to hear from our readers – even when it’s nastygrams.
February 14, 2019