good pic



...wherever you go, there you are...

Previous Entry Share Next Entry
one way to save the economy, or at the least, the perception of it and the confidence in it.
good pic
During/After the 1987 Stock Market crash, Ronald Reagan and company did (at least) one thing that totally saved the situation. He and his cronies got on the phone and talked, twisted arms, whatever, but they got american listed companies to start announcing buybacks of their own stock.
Today, a great many US companies are awash in cash, but won't invest it because of the uncertainty. So, the cash sits in T-Bills at banks. And the financial institutions are much much less likely to lend it to anyone, cause it might cause them to have to adjust their balance sheets and take writedowns. So, the money sits there.
If even a couple dozen companies that have high cash levels announced stock buybacks, the stock market would get the confidence it needs. Obama is, all things considered, a rather pro-business president. He and his group should be on the phone right now. Or maybe they are planning it all for closer to the end of this year, so the length of the rise stretches through the 2012 election.
My, how cynical I have gotten as the decades go by.

  • 1
(Deleted comment)
It's also a recognition that compensation dilutes the stock over time via options and outright grants to execs and buy-backs are a way to reverse that.

Right now, so many companies are signaling they dont have a better way to invest by storing the cash in t-bills. Stock buybacks are (at least) a way to get money out of the stingy banks and put it in people's hands to use. You are wrong about the positive signal thing. Stock buybacks have always been perceived as a sign of strength. As you point out, investment in the business itself would be preferred (much preferred) but stock buybacks at least use the money, and dont just store it in banks for other purposes. And who says they have to use all of it? Even the announcement itself would change the perception, and the buybacks (usually) occur slowly enough there is plenty of time to not go hog wild causing an upside panic.
Finally, you give stockholders of today way too much credit.

  • 1

Log in