Share Buybacks Are Toast for 2020: Oops, that was the $4.6 Trillion Driver of the Stock-Market-Bubble

Even after the bottom is perceived to be in, “buybacks may be slow to come back” as companies struggle for cash amid potential government restrictions on buybacks and their dismal public image: S&P Dow Jones Indices.

By Wolf Richter for WOLF STREET:

Share buybacks by companies in the S&P 500 Index in the fourth quarter 2019, before the Coronavirus was even a factor, fell 18% from a year earlier, to $181.6 billion, after falling 13% and 14% year-over-year in the prior two quarters, from the blistering tax-cut records set in 2018, according to S&P Dow Jones Indices today. For the full year, buybacks fell 9.6% from the tax-cut record in 2018, to $729 billion in 2019, the second highest annual total ever.

Since the beginning of 2012, these companies have bought back $4.6 trillion with a T of their own shares. To provide a comparison of how big this T-number really is: It blows past the magnitude of Germany’s annual GDP.

Share buybacks were considered illegal market manipulation until 1982, when the SEC issued Rule 10b-18 which provided corporations a “safe harbor” to buy back their own shares. The only thing that share buybacks are supposed to accomplish is to manipulate up share prices.

The four biggest US banks were among the 10 biggest share buyback queens in terms of the amount of capital they wasted on share buybacks in Q4 2019. Combined they incinerated $95 billion in capital last year, and $275 billion over the past five years (if your smartphone clips the 6-column table, slide the table to the left):

Share Buybacks, in billion $
Top 10 in Q4 2019 Q4 2019 Year 2019 5-year total
1 Apple [AAPL] 22.1 81.7 264.3
2 Bank of America [BAC] 7.7 28.1 68.5
3 Wells Fargo [WFC] 7.4 24.8 73.4
4 Bristol-Myers Squibb [BMY] 7.0 7.3 10.3
5 JPMorgan Chase [JPM] 6.8 24.0 74.1
6 Alphabet [GOOG] 6.1 18.4 37.8
7 Microsoft [MSFT] 5.2 19.5 77.5
8 Citigroup [C] 5.1 18.0 58.9
9 Oracle [ORCL] 5.0 26.9 77.4
10 Intel [INTC] 3.5 13.6 34.4
Total, 4 Banks: 27.0 95.0 274.9
75.9 262.3 776.8

But now, Financial Crisis 2 has kicked in, and the share buybacks of these four banks along with the share buybacks of other banks have dropped to zero, along with many other companies that are now facing a liquidity crisis.

The banks could have used those funds to shore up their capital, which would have been useful now as the bubbles in corporate debt and commercial real estate, that the Fed was so worried about, are coming unglued.

But aside from generating fees for Wall Street, share buybacks do zero for the economy. What would have happened in the US economy if that $4.6 trillion in capital that companies incinerated by buying back their own shares since 2012 would have been invested in equipment, structures, expansion projects, and people, or would have been used to reduce debt so that companies, such as Boeing and the airlines, wouldn’t be in such a precarious situation today?

That capital that was incinerated by companies buying back their own shares would come in handy for companies that are now begging for and getting mega-bailouts from taxpayers and to an even larger extent from the Federal Reserve.

Now what?

“COVID-19 has significantly changed the 2020 landscape, as dividends are under pressure and buybacks appear to be gasping for air,” said the report by S&P Dow Jones Indices, adding that “buybacks must now compete with other corporate priorities as uncertainty over liquidity is at its highest since the 2008 financial crisis.”

The report says that for 2020, most companies have moved buybacks “to the backburner,” having “reordered their short-term priorities:”

  • “Controlling liquidity
  • “Maintaining business operations and retaining employees
  • “Uncertainty over the length of virus and depth of the economic impact.”

For Q2 2020, buybacks are “expected to be dismal,” and for the rest of the year, “buybacks may see a complete reversal of the 2018 buyback bonanza.” And the report by S&P Dow Jones Indices adds, even after the bottom is perceived to be in, “buybacks may be slow to come back” as companies, struggling for cash, limit spending amid potential government restrictions on buybacks and their dismal public image.

So the biggest buyer in the stock market, the one that never sells and only buys, the relentless bid that wants to buy high to drive the share price even higher, well, this relentless mega-buyer that blew $1.5 trillion over the past two years buying the shares of the largest companies in the S&P 500 got burned and, now screaming in pain, jumped away from the market at the worst possible moment.

Chapter 11 bankruptcy that wipes out shareholders is the correct solution for collapsing share-buyback queens. US airlines already know this from experience. It works. Read...  After Blowing $4.5 Trillion on Share Buybacks, Airlines, Boeing, Many Other Culprits Want Taxpayer & Fed Bailouts of their Shareholders

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  113 comments for “Share Buybacks Are Toast for 2020: Oops, that was the $4.6 Trillion Driver of the Stock-Market-Bubble

  1. KGC says:

    And yet, is there any hope that political pressure will be brought to bear on the SEC forcing a permanent revocation of Rule 10b-18?

    Not a chance…

    The inflation about to hit is going to make Jimmy Carter’s presidency look good.

    • sc7 says:

      So much deflationary pressure, I’m not sure this is going to happen, at least in the near term.

      • Jacob shook says:

        And Jimmy Carter inflation was to correct the situation created by Nixon t f2f ting to fight the Vietnam war in credit.
        The high interest rates broke the inflation spiral but at what price

    • Jonathan Vause says:

      it will show up in asset price inflation only, as it has since the 90s. get ready for the mother of all market rallies once the free money starts flowing

      • implicit says:

        Don’t think it will work like before. Still way too much uncertainity in the future market.

        • Mr Wake Up says:

          Brace for impact the great depression part 2 has arrived – but instead of the great depression just go with the lesser of two evils – This is the coronacrash!

          Spanish translation for crown – the American financial empire the crown jewels has shattered into pieces. Will she ever recover? If so it they them will be put back together with crazy glue to only dry out and collapse at later date.

          We were warned of malicious investments being revealed during black swan events hence they didnt deliver we work who is my guesstimate the banner child for the office apocalypse that will come right after this coronacrash places the last nail in the retail apocalypse coffin. I just never thought the malicious investments and investors would be worst off they would be packaged in the form of our own government??!!

          What happen to trump saying get rid of the fed now he says Jay Powell good job instead?

          My fear is the socialists will use this as a rally cry and lead by example socialism for the rich so next give it the poor.

          They did such a great job via satan wood land and marxist professors brainwashing a generation believe they were fighting against the machine to avoid any true awakening but now with coronacrash and deep state no longer hiding but right in your face when the smoke clears they might see red and blue as the same team and split off creating a new party.

          So many worst case scenarios to come.

          I’ve experienced this in 2008 when my first child was born and thankfully learned our lessons but now to reset again with 2 more blessings in our house… now I’m so disgusted. The fall out of small business will be devastated all done so we can bail out the ultra .001%

      • Cruiser says:

        Don’t bet on it. Central banks are now up against the zero bound, unable to foment another financial mania by pushing short rates to new nominal lows. Heavy debasement of the dollar can be expected to feed through to inflation this time, probably in dramatic fashion ultimately. We haven’t seen such an outcome in the US for decades so many will be surprised.

        • cb says:

          We have had consistent price inflation for decades. Theft through inflation has been continuous.

        • Rcohn says:

          Next to come is yield curve management by the FED.This is nothing more than the FED deciding what the interest rate on a certain maturity(s) Treasury bond will be and buying at that price no matter the supply, nor the amount of underlying inflation.
          The logical conclusion to yield curve management is that the FED will own the entire supply of a given maturity.

    • ted says:

      1) Banks already met govt capital requirements from 2008 crisis.

      2) They had no way to predict pandemic so should be bailed out with the rest of us.

      3) Bankruptcy simply puts assets in govt hands for distribution as if courts have great management talent. It would be a disaster for economy and employees.

      4) Your socialist hatred of our great corporations is fogging your thinking .

      • Wolf Richter says:

        “3) Bankruptcy simply puts assets in govt hands for distribution as if courts have great management talent. It would be a disaster for economy and employees.”

        Garbage. Bankruptcy is a legal process under the supervision of a court by which the creditors (not the government) assert ownership of the company, and shareholders usually get nothing. Creditors get to decide what to do with the company, whether to liquidate it or restructure it, and how to restructure it and make a go of it.

        Delta, American, and United, among other airlines, already went through the bankruptcy process once. And it worked just fine. It’ll work a second time as well.

  2. Norma Lacy says:

    Wolf – if what I just read is true, buy backs will become closet buy backs. According to Zero Hedge, the Fed just hired f’ing Blackrock to manage its share/ETFs etc purchases. So we’re paying those f’ing crooks a fee to steal from us – twice or is it $2.5 trillion times?

    Of course we know that JP Morgan gets a “fee” to administer food stamps. Pelosi apparently wants to add to that with the payout-to-the-poor program that’s tucked with her 1100+ page “bill” …” a digital wallet ” to be managed by????

    Why don’t they just go ahead and hit old ladies over the head with baseball bats and steal their handbags?

    • JM says:

      According to Zero Hedge, the Fed just hired f’ing Blackrock to manage its share/ETFs, etc purchases

      Yes, this is like giving the thief who enters your home all your savings so that he can invest in your advantage

    • Unamused says:

      Oh my.

      I’m going back to bed. Somebody wake if the ghost of Adam Smith shows up.

    • Unamused says:

      Why don’t they just go ahead and hit old ladies over the head with baseball bats and steal their handbags?

      Because they’d have to incur the expense of hiring thugs, and they already set up an automated system to rob them.

      They teach you these things in MBA school.

  3. David Hall says:

    They did not want to pay dividends, make capital expenditures, or pay down debt. They wanted the value of their shares to go up. They took shares out of circulation with buybacks.

  4. Mike says:

    Love your articles Wolf!

    Will companies with large amounts of cash (e.g. Apple) continue to do buybacks? If so, will they outperform the market to an even greater degree going forward?

    • Wolf Richter says:

      It will be interesting to see what revenue hit Apple will take. It has supply problems AND demand problems. So maybe that balances. But it’ll hit revenues.

  5. Rowen says:

    Debt financed stock buybacks were also a vehicle to get cash to whale shareholders without having to repatriate earnings from tax havens.

    • cb says:

      and to direct cash to manangement through their exercise of appreciated stcok options.

  6. Beardawg says:

    If the Fed is backdoor injecting 4T+ to erase bad debt and lay it at the feet of taxpayers…then it would seem Buybacks should come back fairly quickly….no?

  7. Tony says:

    Did you hear about how the Wynn Resort in Las Vegas….the execs are foregoing salary in exchange for their low stock shares for the rest of 2020? It’s like an indirect stock buyback. They try to make it look like they’re doing the “right” thing.

    Also, don’t forget all the defense spending happening in the that sector, Lockheed and Raytheon just got large govt contracts today.

    This is all textbook. Rinse and repeat. Ride the wave, boys.

    • Petunia says:

      The Wynn guys will get a bonus to make up for the loss of pay. The more things change….

  8. 2banana says:

    And – Most of the buybacks occurred when the market was insanely overvalued.

    So not even a good investment decision.

    But it makes the numbers for executive bonuses without doing any work (like increasing sales, more productively, successful R/D, etc.)

    And – Why it used to a criminal violation of the law for stock manipulation.

  9. Wes says:

    Mr. Richter good job. By the way, while I was watching Bloomberg today a headline in the side bar said “ Fed pours gas on junk bond dumpster fire”. Seriously, you can’t make this stuff up!

    Keep it up, the Fed troll may show up again. You’re getting to him.

  10. Paulo says:

    All these crap shenanigans should be illegal. Unbelievable, and disgusting.

    I hope the culture changes After Virus. Why business privateers are heroes is absolutely beyond me? Money money money. It would be illegal for me to write what I think should be done to these tycoons, and I don’t want to be banned from WS, so I won’t say anymore. Suffice to say none would last very long in our Valley. They would be run out on a rail.

    A friend of ours just shut down her business, a highway restaurant and pub. She says she might not reopen. She spent the last 4 years working her tail off to build it up right, and now she is broken.

    Stay safe.

    • mike says:

      I think that we should focus federal aid to businesses on helping 1) deserving, viable, small businesses with low interest loans; 2) essential businesses (like Boeing due to its production of military equipment, massive number of American employees, and internationally recognized airliners) but by requiring in exchange convertible bonds, convertible to 999% of outstanding or authorized to be issued shares, which ever number is larger. That way, the larger businesses will become owned in large part by the government and can help meet the massive mostly unknown, federal, state, and local liabilities of the US.

      The small businesses can have their interest rates reduced with time, if they are viable –after their viability is determined. They actually pay taxes, mostly, so small businesses that can survive the ongoing, new recession should be helped to survive. Loan forgiveness should be used carefully: why give numerous “small” businesses owned by millionaires millions of dollars of gifts via massive loan forgiveness?

      The cold, hard truth is that not all small or large businesses were going to be viable anyway after the inevitable economic downturn caused by the popping of the enormous, 2008-2019, economic bubbles that the bank cartel called the “Fed” inflated to funnel funds to its bankster owners. Many businesses were destined to fail even without this coronavirus.

      Half of new businesses or more usually fail. We cannot bail out all wealthy business persons, so they have the same net worth as in December 2019. They will have to take losses: that is true capitalism.

      The US currently (before this planned bail out and not even counting the free money that the national bank cartel (Fed) is giving away to its cronies right now and gave them ever since the 2000s) owes over $200 trillion in liabilities. These liabilities are effectively inescapable, except by creating inflation: for legal promises to pay you social security payments for your retirement, future medicaid/medicare payments, other entitlements, debts owed for military pensions, interest on the huge outstanding federal debt, including the QE debt blown up by the Fed to give QE commissions, dividends, etc., to its bankster owners, etc.

      The Fed bankster cartel has been able to printing US money through its immense QEs to funnel wealth to its cronies, only because foreigners still accept our nation’s legal tender, the dollar. Simply put, we can still use these soon to be created-printed, bail out funds from today’s proposed $2 trillion bailout to help, because so many nations trust the US dollar and accept it to purchase oil, food, other resources, etc.

      Other nations cannot do that. Only the US can print US dollars. Other nations must work or produce or provide something to get US dollars to pay their debts — for now.

      The minute that foreign countries suddenly require payment in Euros or other currency, we have serious problems. Reckless money printing risks creating gigantic, sudden inflation: read about the Weimar Republic and the consequences of reckless money printing. That could cause the loss of foreigners’ confidence in the US and its dollar.

      I will not mention Chinese history nor the history of so many other countries which should serve as clear warning to Americans that reckless money printing/creation will inevitably lead to national disaster. The bankster cartel (Fed) sought to create inflation but held most of it in abeyance and out of the view of consumers, because it gave most American’s wealth to its bankster owners, who were not purchasing consumer goods, etc., which most Americans purchase.

      They purchased stocks, real estate, etc., which is why those asset classes became so inflated in value, while other things did not. Thus, the “ghost of Adam Smith” may sleep for now, but good forbid that the reckless Fed or this administration create Weimar-style inflation: we are not exceptional and holy.

      God will not come down and save America if foreigners decide to stop accepting the US dollar and demand payment in other currencies. History shows that empires/nations come, rise, fall, and go, so our economy can become like Argentina’s has been, if we are more reckless. Sadly, the recklessness in our leaders seems to be increasing, because of the normalcy bias: the disaster that may come seems impossible now.

    • Deanna Johnston Clark says:

      After my dad was seduced out of his life savings by an insider who plied him with dinner and drinks, he studied business history. (He had a business degree from SMU, (1940).
      The destruction of our business ethics was deliberately done in Harvard Business School around 1970. The word “business” became very scabby and sociopathic after that, for good reason. If George Carlin had done his routine against business in 1950, it would have only been mildly funny. By the year 2000 it had become a sacred favorite.

  11. Iamafan says:

    Wolf, percent wise, what is the portion of buyback expense that was borrowed?

    • Wolf Richter says:

      Well, either they borrowed money for share buybacks or to meet payroll or to buy other companies or to pay into the executive pension plan that is always fully funded. For example, a company issues $1 billion in bonds and buys back $1 billion of its own shares, but it also has lots of other outlays. So you cannot really pin down “how much they borrow to buy back their own shares.” It’s easier to look at it another way: The latest number I remember reading is that companies paid out over 100% of their cash flow in buybacks and dividends for years. This also explains the record amount of corporate debt that has piled up.

      • Deanna Johnston Clark says:

        Underlying all this is the emotionally invested code of sociopathic self interest, narrow sympathies, and suicidal snobbery of the “lucky”.

        Who gets the last laugh?

      • Wes says:

        Yes, use the capital gains rate tax loop hole. It’s a cheaper way to distribute earnings rather than dividends or income to option holders, oops, I meant “shareholders”…

  12. Cas127 says:

    “The only thing that share buybacks are supposed to accomplish is to manipulate up share prices.”


    Everything is a matter of degree, and you are starting to go too far…just as the corps did in their reliance on buybacks.

    At bottom, buybacks are another form of distribution to shareholders – the vast majority of whom invested their capital *in to* the company (if you want to make a distinction with insider option holders, okay, although the case would be made such options were compensation for labor).

    Dividends are another form of shareholder distribution…removing safety margin capital from companies…would you ban all dividends too?

    Should *all* accumulating net income be perpetually held *within* the company?

    Completely under the control of insiders, in perpetuity?

    With no real world “distribution check” on internal valuation of worth? Would *that* make share prices more accurate?

    The case can be made that buybacks are more amenable to stock price manipulation than regularly scheduled dividends…fine, I might go along with that. Especially since buybacks have come to make up such a large pct of distributions to shareholders.

    But that goes to the judgment of insiders, not the tool itself (which is in fact Gvt Approved and encouraged so long as there is a tax rate differential between capital gains and ordinary dividend income).

    I am not arguing that corps have come to rely too much on buybacks (mainly because that fuel likely evaporates at the same instant retail share demand does…like now).

    But the extent of your jihad has stopped making sense and is encouraging a move to ban the practice entirely (you are nuzzling and winking at that option).

    But as I said, there is not *that* much difference between buybacks and any other form of distribution out of the Corp to shareholders (who originally put capital in )…they are all going to reduce the “safety cushion” of capital held within the corporation.

    • VeryAmused says:

      “The only thing that share buybacks are supposed to accomplish is to manipulate up share prices.”

      That is an absolutely true statement. Your argument does not negate that statement. Manipulation is not a dirty word.

      Some profitable companies had valid reason for buyback manipulation, say Apple for instance, others, like Boeing, not so much.

      • Cruiser says:

        Also a way to get value to remaining shareholders (higher earning per remaining share) without creating an immediate loss due to short term cash tax liability, as with dividends.

        • roddy6667 says:

          If it is done with borrowed money, it reduces the value (GAAP) of the shares. The price on Wall Street has nothing to do with real value.

        • MD says:

          Money that could have been spent to pay workers more so they and their families could have a better quality of life…or indeed, buy more stock of the company for which they work…a virtuous circle.

          There is no good reason for corporate buybacks. It’s just legalized fraud, with all kinds of specious reasons invented to justify it.

      • Cas127 says:


        In this case, Wolf is treating it as a dirty word…that is the overall tone of the post (“used to be illegal”, etc).

        I agree that buybacks have been abused by corps (mainly because their enabling fuel vanishes in the same recessionary moment that retail share demand does).

        But the whole tone of the post (and earlier ones) sounds more and more like anti-any-shareholder-distribution for sake of absolute maximum capital safety cushion.

        I hate bailouts too, let ’em burn/pay the price for their lack of capital caution (or if worried about employment impact of bankruptcy, let ’em bleed for a much smaller bailout).

        But the jihad against buybacks is to mistake the tool for the cause – the cause being crappy boards without foresight.

        “Forcing” idiot boards to retain control of more capital is not going to help the economy. They will just hike their pay and have gold fixtures in the executive washroom.

        • Deanna Johnston Clark says:

          You’re saying “if men were angels, no government would be necessary.”

          You slipped religion through the cracks….

    • Root Farmer says:


      Wolf has been consistent in criticizing the acquisition of debt to finance buybacks. Couple that with the timing of many of the purchases (high prices), it is simply price manipulation. While it is true that a buyback is a more efficient return of capital to investors, the “investors” that appear to most benefit are the executives who are structuring the buyback to sell their holdings at the highest price. Company health and prospective growth be damned. Loading the company with debt does not fit the neat paradigm you described and should be considered irresponsible. Simple question: How many companies are taking on debt to execute a dividend?

      When a tool cannot be used responsibly, we take it out the hands of children. That is not a critique of the tool but of human nature.

      By the way, I enjoy your remarks. Your comments are interesting enough, I don’t need to agree with you.

      • Cas127 says:


        I appreciate your view.

        Your comments on debt-financed buybacks (or any distribution) are well taken…and debt\equity ratios can provide evidence of abuse (enormously enabled by 20 yrs of DC ZIRP of course)

        This is a rare occasion when I disagree with Wolf…and I really only disagree a bit, and mainly having to do with the increasingly hostile tone (ye Olde illegality is being invoked with greater frequency – which casts a “come hither” glance to the pitchforked anti-capitalist crowd that makes up a fair portion of the commenters on Wolf’s site…who would be happy to “intercept” any dirty shareholder distributions in the name of the People…and underfunded public employee pensions…).

        • rhodium says:

          Share buybacks in the era of utter financial irresponsibility I think is more the issue. It’s the context of this overarching insanity that has taken over all levels of the economy, and I think people are justified in feeling very angry when they see the moneyed elite angling for most of the pie and getting it through their political connections with these bailouts. It looks more and more like feudalism than “capitalism” to anyone who cares to define terms based on history, but because the moneyed elites call it “capitalism” while seeming to engage in irresponsibly selfish or downright immoral behavior, then the people understadably begin to hate what is called “capitalism.” If they are so desperate to keep what they call capitalism then they should work to enforce a fair system. Instead they act like beasts ravenous for more, and that is why the Democratic blowback is going to ruin them.

        • Root Farmer says:


          People are getting angry. Not angry enough, or at the right scoundrels, but angry. Given how fast Wolf is pumping out the research right now, I suspect his own anger is leaking into his writing and you are sensing it.

          If I remember, the joke goes:
          There’s a hedge fund manager, a business owner and a union rep sitting at a table with 12 cookies. The hedge fund manager leans in, takes 11 cookies and whispers into the business owners ear, “Hey! Watch out for that union guy. He’s try to steal your cookie.”

          Until the business owner realizes that he has a cookie-MBS in his hand and it had no value anyway.

        • The Colorado Kid says:

          Cas, please don’t conflate “anti capitalist” with anti CRONY capitalist.
          I’m a strong Capitalist, but I abhor this mutant form of Warren Buffet Oligarchical Monopolistic thing that passes for authentic capitalism these days.
          Furthermore, all this does is confuse the Millennials & the Z’s that “Capitalism” is bad because the form of faux Capitalism that is practiced now IS in fact bad for our society as a whole and that which is bad for society as a whole often does not end well.

        • sierra7 says:

          In my case I don’t think Mr Richter has shouted loud enough about the crookedness (my words) of share buybacks!
          A true ponzi operation.
          Shout louder Mr. Richter!!

        • cb says:

          “abuse (enormously enabled by 20 yrs of DC ZIRP”

          DC ZIRP? Don’t you mean Banker FED ZIRP ……………

          Try as I may, I find no reason to excuse the capitalist corporatist state …………………….

          though it is convenient to use their “democratically elected” bought politicians for cover.

    • IdahoPotato says:

      1. Most buybacks happen when the price of the stock it at its peak. That is counterproductive to me as a shareholder.

      2. Corporate insiders increasingly use buybacks to cash out.
      “Twice as many company insiders sell their shares in the eight days after a buyback announcement than on an ordinary day.”

      Am I supposed to believe that buybacks are good for a company and its shareholders?

      3. A dividend is cash in my pocket. A buyback is of benefit to me only if I sell.

      Buybacks were illegal. They should be illegal.

      • TXRancher says:

        Yes all those financiers for century before 1982 were so stupid because they didn’t allow stock buyback but we are so much smarter after 1982 that we allowed buybacks. And then the stock market went exponential after 1982. Said sarcastically.

    • cb says:

      “At bottom, buybacks are another form of distribution to shareholders – the vast majority of whom invested their capital *in to* the company”

      That is not a service that shareholders needto be performed by the company. The shareholders are free to sell shares on the open market any time they want. Share buybacks are shields to transparency in that they drive earnings per share, and stock prices, leaving many stockholders thinking the company is propering more than it actually is. I will concede that it is a wonderful manipulative tool for for fleecing value for the benefit of management when they hold options. If your goal is financial engineering, then stock options are your friend.

      • cas127 says:

        I am not a big fan of buybacks (for the reasons you state) and particularly at the enormous scale they have been occurring for the last 20 yrs.

        But I am just very, very wary of people lobbying (and I think Wolf is edging up to that) for closing off ways (if only some) that shareholders can regain access to their capital (in the name of “public safety”, ie bailout avoidance).

        There are too many parties abroad today looking to appropriate others’ savings for “the greater good”…usually defined by the operationally oleaginous political process in DC.

        I hate bailouts too…but then block bailouts, don’t seize/handcuff capital.

        If you think the Board is filled with self-dealing, mainlining risk junkies…rewrite the corporate governance regs to increase their scrutiny/liability if the Corp becomes insolvent…but don’t lock-up capital.

        Also, although an ugly, ugly argument, the case can be made that corp share pricing is so hugely addicted to buybacks after 20+ yrs, that valuations might lose another 20% to 30% in the midst of the current disaster if buybacks were immediately re-prohibited.

        I agree that they are a bad practice at the scale at which they have been occurring, but it may be a case where, as St. Augustine said…

        “Make me pure, Lord…but just not yet”

        Which is an argument I normally really, really hate.

        • Deanna Johnston Clark says:

          Abraham Lincoln had the same puzzle to solve…..

        • cb says:

          When we dance around the edges, we take on the attributes of the politicians and FED members we despise. Corporations are creatures of the state. They should be regulated. Letting management and insiders use bad practice to enrich themselves at the expense of society is evil. Limiting liability for shareholders has allowed management and insiders to benefit by larcenous activity, because so many shareholders are asleep at the switch, and because the government which sets the rules, regulations and conditions for corporations to exist is bought off.

        • cb says:

          “Also, although an ugly, ugly argument, the case can be made”

          Bad cases are often made by ugly arguments. Many times, large numbers can’t recognize the argument is ugly, particularly when the argument is parroted by so many who have a stake, either monetarily, professionally or ideologically in the ugly argument. That is what the propogandists count on. And, so the charade goes on.

        • sierra7 says:

          “Don’t lock up capital”
          Capital (and it’s enablers the financial world and the crooked politicians) needs to be locked up and the key thrown away!
          Where have u been for the last 40-50 years????

    • Wolf Richter says:


      OK, time for an over-simplified example…

      Dividends: You hold $100 of shares of company X. Those shares pay $5 a year in dividends. After 10 years, you earned $50 in dividends. Then the shares plunge 50% and you sell at $50. You essentially broke even.

      Share buybacks: You hold $100 of shares of company Y. They pay no dividend. But the company buys back $5 of shares per year. Then after 10 years, shares plunge 50% and you sell for $50 a share, and lost $50.

      You see what I’m saying?

      Shareholders actually get the dividends – dividends are an actual return of capital to shareholders, and I never bitch about dividends. Companies are supposed to pay them.

      Shareholders do NOT get share buybacks. Share buybacks are NOT a return of capital to shareholders. That’s widely spread Wall Street propaganda. The only hope is that the share buybacks will manipulate up the share price, because that’s the only way shareholders will benefit. And that’s what I said.

      • HowNow says:

        There are a few instances when a buy-back is a good corp investment: 1) if the shares are considerably undervalued and the best use of the company’s capital is buying its own underpriced stock, or 2) when the company’s cash-flow is stable or increasing, and the business environment cannot justify an acquisition or increased capital spending for itself, then reducing the float of shares makes sense. Or, a special dividend can be given out in the second case.

        But those are the exceptional cases, not the rule. Finding an undervalued stock in the last 28 years is a rarity with the exception of a brief period in 2008/9.

      • Deanna Johnston Clark says:

        Thanks, once again, for the clarity.

      • cb says:

        You are a Genius, Wolf, because ………………
        Not only can you so clearly see the picture in your mind, but you can so clearly and simply “paint” it for others to see.

  13. Satya Mardelli says:

    Remember way back in time when the Glass-Steagall Act prohibited bankers from using depositors’ money to pursue high-risk investments, or when short selling was illegal or when stock buybacks were illegal?

    Them were the good old days.

    In the 1980s-1990s the bankers were able to get regulatory relief and now all of that sensible regulation has been lifted. Now your swimming with the sharks. Proceed at your own peril.

    • Unamused says:

      Remember way back in time when the Glass-Steagall Act prohibited bankers from using depositors’ money to pursue high-risk investments, or when short selling was illegal or when stock buybacks were illegal?

      That’s just getting the government on the backs of business. Modern practice does away with all that so corporations can risk the entire economy and traumatise millions for an extra buck.

      Don’t be so sentimental.

      • Thomas Roberts says:

        It’s not really for the corporations even, stock buybacks are so the executives at the companies get rich, as they are paid largely in stocks. It also can make it look like the executives are making the company perform well. It always tanks the company in the long term, as it drains money away from investing in new products or markets, drains their money, and even involves taking out debt.

        • Deanna Johnston Clark says:

          When shooting craps it’s traditional to shout, “Baby needs new shoes!!!”
          It’s also very bad luck for the winner if he DOESN’T get the baby the shoes.

      • cb says:

        And best of all, Corporations can practice their deeds all under the cover of Limited Liability.

        • Unamused says:

          All the Evil Overlords run big corporations because big corporations can’t go to jail. Dr. No, Goldfinger, Blofeld, Zorin, Drax, all of them. The worst of them aren’t fictional.

          I have a list of things I would do if I decided to become an Evil Overlord:

          50. To keep my subjects permanently locked in a mindless trance, I will provide each of them with free unlimited Internet access.

  14. roddy6667 says:

    Since 2009, the largest buyer of stocks has not been individuals, mutual funds, pensions, or insurance companies. It has been the corporations themselves. The “greatest economy EVAR” is all hot air.

    • Zantetsu says:

      Is that really true? Can you cite a source for this?

      • Wolf Richter says:


        “Is that really true? Can you cite a source for this?”


        “Net equity demand” (purchases minus sales) over the five-year period through 2018, according to data from Goldman Sachs:

        — Share buybacks: +$2.95 Trillion
        — Households: +$223 billion.
        — Life insurers: +61 billion
        — Stock mutual funds: -$217 billion.
        — Foreign investors: -$234 billion.
        — Pension funds: -$901 billion (to keep asset-class allocations on target as share prices soared).

        • Cas127 says:


          I’m the guy pointing out that the SP 500 has been increasingly overvalued (on a PE basis) since at least 2015…sometimes by upward of 40 pct…but what do you think is going to happen to valuations if you choose this particular moment to kick away the “phonied up prop” of buybacks? (my words, but I think your view)

          Looking at your numbers above, it looks like over 60% of share demand would vanish overnight.

          Maybe it would move valuations closer still to a rational level…but it would do it via a massive crash…on top on the current crash, and on top of the likely crash coming when the “lockdown” earnings numbers start to show up in detail.

          My sense is that your righteous outrage primarily comes from the bailouts being triggered by a lack of an adequate capital safety cushion…the capital having been previously “pissed away” via buybacks (or dividends, or dumbass capex, or really any other non-positive ROI invt a lobotomized Board may have okayed)

          But if we are both being honest, there was never going to be a realistic capital cushion fat enough to withstand a multi week/month national economic lockdown. Offset/lower the size – yes…but completely eliminate the need for one (in airlines, hotels, etc?), I don’t think so.

          Hate bailouts?

          Bar bailouts and proceed to BK.

          The shareholders hired the dumbass Board and took their filthy distributional lucre…let them pay the price.

          But by “pure cushion” logic, we must prohibit all capital distributions in all industries for the next 100 yrs because in 2120, the TBTF bank lobbies will all be three feet under water due to “certain” global warming. With its century hence “known” specific effects (despite the inability to predict specific effects 5 yrs hence).

          There is reasonable restraint (key actor TBTF banks had their distributions locked down for a number of years…likely not enough) and then there are policies born of rage, with the latter frequently making things worse (being more in the nature of retribution than regulation). If you lock down capital distribution too much, who wants to invest domestically at all in a ZIRP world?

          You may gather a army/mob under a ban/criminalize flag…but they won’t all (or even mostly) share your motivations…or your goals.

          PS – I am actually much more of your mind than these posts may make it seem…but the repeated invocations of “used to be criminal” are going to call into being forces that pass beyond your intent.

    • Zantetsu says:

      This is not a duplicate comment.

  15. Bob Hoye says:

    Traditionally, stock market operators have been “Pros”–buying or creating stock at low prices.
    And then getting off positions at high prices.
    Sadly, with so many companies the directors and guys in the treasury dept. tried being stock market operators. Without the learning experience.
    Borrowing funds at exceptionally low yields and buying stocks at record valuations. That’s relative to GDP or average wages.
    Just plain stupid.
    Also, very sad for shareholders.
    Many bondholders will get the shaft as well.

  16. two beers says:

    it seems like too many Americans worry more that a homeless mother might get a free meal for her starving child than that the billionaire boys will get trillions of dollars of bailout money for the second time in the last twelve years for anything to ever change.

    • No Expert says:

      Preach brother

    • MD says:

      Yup – just remember to scream “COMMUNIST!!!!” at anyone who tries to suggest that a country should be run for the needs of all its people rather than the desires of its wealthy.

      You’d have to the propaganda intended to make people think that way has worked remarkably well.

      People now mostly don’t understand what a properly-functioning social democracy is – they just clamor to become one of the people who can buy a big mansion and shut themselves away.

      • HowNow says:

        It’s very nice to hear about the rich and famous or watch them on TV.

        “What do you mean there’s nothing on TV? Look, they’re eating quiche.”

    • Deanna Johnston Clark says:

      You wouldn’t have had to mention that if there weren’t such hypocrisy in “good” people.

      • two beers says:

        Case in point: the means-testing fetish in the supposedly left-of -center wing of the political duopoly.

  17. Rcohn says:

    Here is an interesting stat.
    If you eliminate the results of Facebook, Apple, Amazon, Microsoft and Google, the after tax earnings of the 495 of the Standard and Poors index was down %7.5 in 2019, yet the index soared .
    Wolf pointed out how much stock the banks bought back; this was repeated with most of the retail industry , which is on the brink of extinction.

    • MD says:

      Easy to increase EPS – don’t increase the ‘E’, just reduce the ‘S’ via debt-fuelled buybacks.

      Then retire to The Hamptons.

      Lovely. For some.

  18. Rcohn says:

    My argument has consistently been that the other side of the coin of very low interest rates is very low rates of return on capital. This is a major reason why companies bought back stock instead of plowing the money into CAPEX.

    • Cas127 says:


      Low Treasury rates = low return on CAPEX capital = interesting theory.

      Low T inarguably lowers fixed income invt returns…which are almost all initially priced (explicitly or implicitly) at a spread to riskless T.

      That is 50% of the reason why DC does it (the rest being that ZIRP also zeroes out the annual implications of DC’s own massive debt, allowing it to exert profound extra-constitutional control via politically directed spending).

      But linked to lowered CAPEX returns? That would be a new one.

      Maybe, if the CAPEX vendors upcharge a corp, knowing that ZIRP makes their inflation more affordable.

      Same dynamic as homebuilders hiking New home prices knowing that ZIRP will keep monthly mortgage pmts constant.


  19. Rcohn says:

    The waters may be populated by sharks , but lurking beneath the surface are sharks enemies , killer whales.

    • Auctioneer says:

      ..and lurking beneath them are the friends of the killer whales…The Free Willy$$$ ________(fill in the blank)

  20. MCH says:

    Come on, Leader Tim, don’t let us down, you can do it. Only you can ensure that the buy back party will continue. Don’t worry, debt is now practically free, in fact, you could probably borrow in Europe, get interest from NIRP and Japan, and accelerate the buy back.

    Make the plebs fight for Apple shares.

    Don’t wuss out like the banks, or the airlines, or that wreck Boeing.

    As Ben Stiller’s Starsky said: “do it… yeah… just do it.”

  21. JimTan says:

    “What would have happened in the US economy if that $4.6 trillion in capital that companies incinerated by buying back their own shares since 2012 would have been invested in equipment, structures, expansion projects, and people”

    Wolf – I completely agree. Stock buybacks have also crowded out new product innovation in the corporate world over this time period. As a result, the 2000 ‘teens were a lost decade or dark ages with regard to ‘breakthrough’ technological innovation. To better highlight how this has contributed to a shocking lack of recent innovation, I think it might be helpful to list a short timeline of commercial innovation over the last few decades:

    First Human in Space, Manned Spacecraft Lands on the Moon, Unmanned Spacecraft sent to other Planets, Orbital Satellites
    Internet Precursor ( Arpanet )
    First Lung, Liver, and Heart Transplants
    Vaccines for Polio, Measles, Mumps, & Rubella
    Ultrasound Imaging ( Sonograms )
    First Coronary Artery Bypass Surgery
    First Laser
    Liquid Crystal Displays
    First High Blood Pressure Medication ( Beta Blockers )
    Contraceptive Pill available to consumers
    First Combined Cycle Gas Turbine Power Plant
    Commercially available Solid State Memory ( Floating Gate MOSFET )

    First Commercially available Microprocessor Computer Chips
    Gene Splicing / Recombinant DNA ( the Central Technology behind Genetic Modification & Genetic Engineering )
    CT, MRI, and PET Medical Imaging Devices
    Fiber Optic Telecommunications
    Commercial introduction of Laser Bar Code Scanners
    Balloon Angioplasty
    Color Photocopiers & Laser Printing
    Hand Held Electronic Calculators

    Home PC Computers
    Computer Networking Routers
    Space Shuttle
    DNA Fingerprinting
    MiR Space Station
    MagLev Trains
    Computer Software Companies
    Computer Gaming Companies
    Consumer Handheld Video Cameras
    Home Video Cassette Recorders

    Commercial Internet
    Mobile Telephones
    Commercial Release of Rechargeable Lithium-Ion Batteries
    International Space Station
    Mapping the Human Genome
    First Cloned Animals
    Thin / Flat Screen Television and Video Monitors
    CDs / DVDs

    2000 – 2010
    Film-Less Digital Cameras
    Wireless Data Networks and Technology ( Wi-Fi & Bluetooth )
    Touch Screen Smartphones, and Music Players
    Tablet Computers
    Commercial GPS
    USB Flash / Thumb Storage Drives
    Text Messaging
    Digital Video Recorders

    2011 – Now

    • Counterpointer says:

      New Twitter 2011, Instagram, WeiBo, WeiXin, TikTok, Soundcloud, Bandcamp… seems to be a theme emerging!

      Aside from iterative improvements to gadgets, or degeneration to product life in order to sell another gadget X, I’m struggling to think of much in the automotive, medical, food science, agriculture, or education sectors.


    • No Expert says:

      Excellent post thanks, fully agree. All that comes to mind is Rocket Lab put up real cheap satellites, Elon Musk fleeced a lot of muppets to make a battery car…
      Its almost as if the post war boom ended a generation ago and since then we have been pretending the financial economy is a legitimate substitute for the real economy – cue liquidity fueled bubbles collapsing and re-inflated to even bigger ones, which is fine until mushroom clouds spell out in the atmo “stupid humans – growth is finite”

    • Paulo says:

      I didn’t see the self driving cars that explode on impact? Or electric scooter rentals, or meal prep boxes with Woke couples on tv opening them and learning to ‘cook at home’ together?

      • IslandTeal says:

        Paulo…well said. I’m also tired of the commercials coming at us in all directions that are 110% PC. Stop with the constant drum beating.

    • Bitcoin, Blockchain, and Pot. Pot represents a step away from single molecule pharmaceuticals. There is a difference between technology and innovations. Electricity is a technology. We move from technology to innovation to anti-technology, or reverse technologies. Money is a technology and Bitcoin is anti-money. Pot is organic, anti- big pharma. The next big thing in politics is the voter initiative which is anti-political. Reversals are periods when new means are used to retrieve older ways of doing things.

  22. Jeff Relf says:

    A growing company issues shares.
    A dying company buys them back.

    The money comes from offshore tax havens;
    and it goes to “pirate” executives,
    including Chief Financial Operators.

    Winnings are privatized;
    losses are socialized.

  23. MD says:

    Wonder how long it will be before we have Presidential decree that the buybacks must restart? Using money provided by issuance of bonds subsequently bough by the Fed?

    Nothing’s off the table when it comes to supporting this corpulent, debt-soaked, hyper-financialized mad system.

    To paraphrase Thatcher: “The problem with capitalism is that sooner or later you run out of other people’s money [for buybacks]”

  24. Breamrod says:

    don’t worry! the fed will buy stocks just like the Swiss central bank. the elites will stop at nothing to keep their power. They are the scorpions of this world and we the people are the turtles. I guess that’s why there are revolutions every so offer throughout history. Hopefully their greed will eventually be their undoing!

    • NewGuy says:

      Yep. And nothing down 110% loans to buy a car, house, anything. No credit check needed. The question is, how many times can the powers that be take us through these boom-bust cycles ?

  25. Smart Asset says:

    “the only thing that share buybacks accomplish is to manipulate the price of shares up”

    Come on! This is supposed to be a finance site. Every corporation makes a decision based on *finance* as to what their capital structure should be. One of the major inputs being -the cost of the various capital components.
    When the federal reserve sets interest rates abnormally low, below the cost of capital, it incentivizes corporations to change their capital structure. It also disincentivizes corporations from just the type of capital investment you refer to later in the article. Because there is already too much capacity as a result of zombie corps being propped up by the ridiculously low int rates.

    You can’t be this dumb. You must have an ideological agenda to let the fed reserve off the hook of the buyback phenomana and to place all the blame on those evil capitalists.

    btw, buybacks are a separate issue from the awarding of stock to management. That is corporate insiders ABUSING THE HELL OUT OF THEIR FIDUCIARY DUTY. And i consider them scum.

  26. joe says:

    What part of Fed buys stocks of zombie corporations don’t you understand?

  27. Duane says:

    So we have reached the point where Dow 19000 is (supposedly) a vicious bear market. I have no doubt that even in the face of dismal financials the market will quickly rally all the way back past Dow 30,000 (and then some), as the virus fears subside. Trump will take credit and be crowned a financial genius and great statesman by the corporate media (generally the same folks that benefit from the latest round of disaster capitalism). And this November we will be blessed with 4 more years of his brand of “very stable genius” because Democrats have nominated a sack of potatoes as the opposition.

    • Phoenix_Ikki says:

      Looks like you might be right, party is back on, 2k+ pts up yesterday and probably end today at 1.3k pts up in Dow…I guess the party is back on, nothing to see here. V shape recovery on the stock market it is…

  28. doug says:

    re: potatoes ‘But he is a nice sack of potatoes(with only a little dementia)’

  29. Jdog says:

    People who think any of this will be inflationary really need to study basic economics. We are in a deflationary cycle now, and nothing the Fed does will stop that. Money is being destroyed much faster than the central banks can compensate for. Do not let your normalcy bias fool you, what you are seeing now is a bounce based on hope and not realistic calculations. The amount of money being lost daily by the world wide shut down is astronomical. The need for cash going forward will be equally astronomical. When cash is not being earned the only way to raise it is to sell assets, which lowers the value of assets, which causes even more money destruction. This thing is the largest economic event the world has ever seen, and it is illogical to believe it will not have the greatest economic impact.

    • NewGuy says:

      I’m curious what people on here think the S&P 500 will be at when we reach the bottom, whenever that is. My guess is 1800 by years end, and if we have a second wave, IDK.

      • Nick says:

        My guess is that we saw a “tradeable” bottom Sunday night in the futures market. We may have a few days where we get back toward those levels or even breach them an extra 5-10% down, but that by year end we’ll be back up around 3000+. People are already numbing to the number from the virus, and as the shock wears off, more people recover, and they start testing for antibodies, the economy will get going. Just remember that markets are detached from the real economy, and every government in the world needs markets to go up long-term; they’ll take any positive developments and combine that with some “greasing of the wheels” and get this clown show back in business.

  30. Tonymike says:

    “Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish. The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.” FDR 1932

    We need another Pecora Commission which led to thousands of bankers going to jail for their malfeasance. Also, thanks for the censoring of bankersters needing to be addressed, because it is your website, but we talk about the problem and no one is held accountable. Two sets of rules, one for the rich and one for the poor.

    • mike says:

      After Lincoln, FDR was our best president. Instead of deregulating banks, which are public utilities, we should re-regulate them. The Glass Steagall Act should be restored, instead of its successors which were more to protect the banksters from liability while labeled as misleading “reforms.”

      Making depositors’ money treated as other bank debts was probably put in because the government would be more likely to bail out the banksters if the alternative was to make thousands lose their life savings. Personal liability, instead, should have been imposed on the banksters and particularly, the banks’ real owners who control the publicly known banksters.

  31. Max Power says:

    Jesse Felder wrote a blog post about this about a year ago.

    According to him there does exist a way to both allow companies to deploy capital using stock buybacks if they so wish, while at the same time avoid the manipulation aspect of the practice: ban buybacks in the open market but allow them using tender offers.

  32. cb says:

    @ Max Power –

    What a coincidence, Jesse Felder just wrote an article today that points out the downside of Stock Buybacks for 4 specific companies.

    Wolf, I think you will like the article, Cas 127, not so much.

    • Max Power says:

      Yeah, four of the largest “Buyback Queens” as Wolf calls them.

      Felder does a good job clearly showing just how much of their stock rise really is made up of manipulation and nothing else (while lowering their enterprise value considerably).

      The scary part is that even though their EV/sales ratio is down thanks to the latest crisis, it is still well above what it was prior to the incredible spike they got after you-know-who got elected.

  33. Nick says:

    As I’ve been doing some bottom-feeding over the past few weeks, I’ve been focusing more on the smaller companies that don’t spend a lot of money buying back stock. There are some small cap companies that have been trading as if the world is ending, and if last week’s prices didn’t at least get you to hit the Buy button on a few of them, I’m not sure what you are waiting for. I sold some of them today (hard to not take profit on a two-day 40% gain) but will hold the ones with stronger balance sheets and minimal history of buying their own stock for a bit longer. If the world does end, losing some of my paper money won’t really matter that much, but if it does I think I’ll have some doubles and triples (+) on my hands by 2021….and whether you agree with the central banks or not, that money will put toys in my garage and stores in my basement just the same.

  34. FinePrintGuy says:

    The SEC ought to put some conditions to be met before buy backs can occur. The need is to protect all the stake holders from the reckless actions of a few people in control.

    For example:
    Make sure pension plans are over funded.
    Debt to equity ratios are low.
    Employees all have health insurance.
    Some min wage is paid to all employees
    Vendor payments terms 30 days max
    Employees 401ks are not just matched but fully 6pc contribution no matter what EE puts in.
    All taxes paid up.
    6 month reserve in cash and marketable securities.

    That kind of thing to make sure buybacks occur only after the company is in a very solid position to weather these storms and not fall back on the gov- or throw their workers onto welfare rolls.

  35. FinePrintGuy says:

    Also- why don’t they just tell Boeing to sell back to the market all the shares they repurchased? Then if they need money after that, we can talk.

    One never hears the easy solutions rise to the top, do you?

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