The Most Revolutionary Act

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The Most Revolutionary Act

Corporations Use Tax Cuts for Stock Buybacks to Increase Share Value

While there is still some fringe debate what companies will do with the hundreds of billions in offshore funds repatriated to the US as part of the recently passed Trump tax reform, the discussion is largely over, especially after last week’s Cisco results. The company, which has $68 billion of overseas cash, third after AAPL and MSFT, announced that it would raise its buyback authorization by $25 billion, and revealed plans to repurchase its entire authorization of $31 billion during the next 6-8 quarters, equal to roughly 15% of its current market cap.

Call it a partial LBO, courtesy of Donald Trump.

In other words, those who said that companies will use virtually all repatriated proceeds for buybacks, congratulations, you were right, or as the FT humorously put it:

Flush with cash after the Republican tax cuts, Cisco announced on Wednesday that it was building gleaming factories across the US, employing hundreds of thousands of workers to make the latest cutting-edge routers.

Sorry, of course not. The money is going back to shareholders.

Don’t believe it? Here’s what Goldman’s David Kostin said in his latest Weekly Kickstart report:

Since December, S&P 500 firms have announced buybacks totaling $171 bn. YTD announcements of $67 bn represent a 22% increase versus the same period in 2017. The buyback window has re-opened and firms are taking advantage of the recent correction; the GS Buyback Desk reported that last week was the most active week in its history.

Putting this number in context, the $171 billion in YTD stock buyback announcements is the most ever for this early in the year. In fact, it is more than double the prior 10 year average of $77 billion in YTD buyback announcements.

Incidentally, the record burst of stock buybacks was arguably the key driver behind last week’s miraculous stock rebound. . .


via This Year’s Stock Buybacks Are Already Bigger Than All Of 2009’s

2 thoughts on “Corporations Use Tax Cuts for Stock Buybacks to Increase Share Value

  1. Of course. Meanwhile, US headlines announce: lower unemployment, leading to higher wages for lower and middle class people, is BAD. It will cause INFLATION. Never mind that lower unemployment leads to more bargaining power for workers of all genders, ages and races. Rising wages = bad. Got it?
    Your buy back story should be US, not just Financial Times and blog headlines. Maybe it will be.


  2. Great observation, JB. To be honest, I find US corporate media harder and harder to stomach all the time. Claiming that full employment causes inflation is utter nonsense. The true cause of inflation is the way banks, insurance companies and real estate developers suck more and more money out of the real economy into financial products. Thanks for your comment.


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