U.S. companies buy back stock in droves as they hold record levels of cash
By Jia Lynn YangWashington Post Staff Writer
Thursday, October 7, 2010
Hewlett-Packard said in August it would spend $10 billion buying its shares. They are one of a growing number of companies using their cash for this purpose instead of to add jobs to their payrolls. (Paul Sakuma Sitting on these unprecedented levels of cash, U.S. companies are buying back their own stock in droves. So far this year, firms have announced they will purchase $273 billion of their own shares, more than five times as much compared with this time last year, according to Birinyi Associates, a stock market research firm. But the rise in buybacks signals that many companies are still hesitant to spend their cash on the job-generating activities that could produce economic growth.
Some companies are buying back shares partly because they don't want to invest in developing new products or services while consumer demand remains weak, analysts said.
"They don't know what they want to do with all the cash they're sitting on," said Zachary Karabell, president of RiverTwice Research.
Historically low interest rates are also prompting some companies to borrow to repurchase shares.
Microsoft, for instance, borrowed $4.75 billion last month by issuing new bonds at rock-bottom interest rates and announced it would use some of that money to buy back shares. The company already has nearly $37 billion in cash, but much of that money is being held by its operations overseas. The tech company is reluctant to repatriate the money, because it would get hit with a huge corporate tax bill.
A share buyback is a quick way to make a stock more attractive to Wall Street. It improves a closely watched metric known as earnings per share, which divides a company's profit by the total number of shares on the market.
Such a move can produce a sudden burst of interest in a stock, improving its price.
Among the biggest buybacks so far this year: Hewlett-Packard, the world's biggest maker of personal computers, said in August it would spend $10 billion buying its shares. Its shares rose 1.5 percent after the announcement.
Hewlett-Packard, for one, said it is doing buybacks to maintain the number of shares outstanding after employees cash in their stock options.
But critics say buybacks are a shortsighted way for companies to offload cash when they would be better off investing for the future.
"It's totally wasted money," said William Lazonick, a professor at the University of Massachusetts at Lowell and director of its Center for Industrial Competitiveness. "It does not do anything long-term for companies."
Lazonick added that executives like buybacks because they boost their own stock options.
Defenders of the practice say companies are better off buying back shares if they don't see opportunities to spend while demand remains weak.
"There are times when the best thing to do might well be to buy back your stock and issue it back again at higher prices," said Jim Paulsen, chief investment strategist at Wells Capital Management. "There's nothing wrong with that."
Buybacks have become more popular in recent months as companies look for ways to spend the massive cash piles.
Nonfinancial companies held $1.8 trillion in cash and short-term assets at the end of the second quarter, according to the Federal Reserve. That is just slightly lower than in the first quarter, when corporate America set a record for cash holdings.
A third-quarter survey of nearly 1,000 chief financial officers by Duke University and CFO Magazine found that the executives' optimism about the U.S. economy had dropped by more than 15 percent compared with the previous three months. That is nearly as low as survey results from the first quarter of 2009, when the economic turmoil was in full swing. Half of the CFOs said their companies will keep clinging to their cash, and only 0.7 percent said they expect to hire more full-time employees.*******
Fed Fraud and Stock Market Crash Bamboozles InvestorsSteve Betts
May 09, 2010
"One of the saddest lessons of history is this: If we've been bamboozled long enough, we tend to reject any evidence of the bamboozle. We're no longer interested in finding out the truth. The bamboozle has captured us. It is simply too painful to acknowledge -- even to ourselves -- that we've been so credulous." --- Carl Sagan
That’s exactly what has happened, the United States government in cahoots with the Federal Reserve and a number of the world’s central banks, conspired to defraud the vast majority of human beings out of their wealth. The fraud began back in 1913 with the creation of the IRS and Federal Reserve, and for decades was confined to the US.The end of World War II allowed the US to exercise vast control over large parts of Europe and Asia, specifically Japan, and they used the Marshall Plan to enslave the rest of the world. The central banks were of course the key. Who did this? Principally the Rothschild’s, Morgan’s, Du Pont’s, Harriman’s, Stillman’s and Rockefeller’s were the first shareholders but Rothschild was the key. The creation was in response to the devastating 1907 stock market crash that decimated Wall Street but did not affect Main Street all that much.
The excuse was that a central bank was needed to protect America’s wealth. What everyone overlooked at the time was the fact that the United States had become the richest creditor in the world, without a central bank, while it was on a gold standard. You see the US Constitution requires gold and silver coins to act as legal tender in the United States. No fiat currencies were allowed as the Founding Fathers had bad experiences with paper money. This begs the question as to why any successful economy would need a central bank when the then current formula for success had produced such wonderful results. The simple answer is that the changes were never designed to protect American wealth. Instead it was designed to be a transfer agent: the wealth of the many would be handed over to the very select few. What’s more it would take place over decades and the tool of choice would be fiat currency, backed by nothing but a promise to pay. No assets required.
They were so good at their job that in real terms a fiat dollar today buys just one percent of what it bought in 1913. Even more shocking is that under the guidance and wonderful leadership of the US Federal Reserve the US has changed from the largest creditor nation in the world to the largest debtor nation in the world. They were able to get away with this shift because the dollar had long ago been accepted as the world’s reserve currency thereby allowing them to print as much as they wanted. Two things happened to upset the applecart: too much debt was created and all the other central banks began to print excessively as well. The world became flooded with “cheap money” and it was loaned out for non-productive purposes. Get that? Truck loads of money were loaned out for no practical, productive purpose. That worked as long as the value of the asset purchased rose allowing debtors to refinance and obtain even more “cheap money”. Then in mid-2007 a funny thing happened, the value of these “assets” mysteriously began to decline and “cheap money” disappeared over night. That meant that millions of Americans who had lived beyond their mean, at the insistence of people like Alan Greenspan, were up a creek without a paddle.
All of this facilitated what we now call the “credit crisis”, and if you believed the Bernanke’s and Geithner’s of the world, it was all behind us and better times were on the way. If that is the case, how do you explain this week’s activities? If things are so good, how come the Dow fell more than 1,000 points in less than two hours? If employment is improving how come the Dow was down almost three hundred points an hour after Friday’s open? Thursday’s biggest sell-off in history, point wise, was immediately attributed to an “erroneous trade” but I don’t believe that. There was a two minute period on Thursday when there were no buyers for anything, nothing, zero, not one share! That has nothing to do with a bad trade; instead it has to do with the perception that real value is non-existent in the market marketplace. It also has a lot to do with the fact that money supply as measured by M-3 is falling through the floor even though the Fed continues to print.
While it’s true that Thursday’s close at 10,520.32 was more than six hundred points off of the low, the damage had been done and no explanations were offered other than the “erroneous trade” excuse. When the market drops 1,000 points in two hours there really isn’t a hell of a lot to say. As on trader put it “people were selling into a black hole”. The clowns on TV called it an aberration and thought cooler heads would prevail. Then of course on Thursday night you had the usual parade of idiots who postulated that stocks were now dirt cheap and should be snapped up. On Thursday night and Friday morning the futures market seemed to agree as the June Dow futures contract was up as much as 100 points. Then came the great unemployment news so an up day seemed to be a sure thing. The New York session opened with the cash Dow trading as high as 10,580 but it didn’t last. An hour later the Dow was down at 10,250 and would have kept falling if the Fed hadn’t come to the rescue. It finally ended the week down 140 points at 10,380.43. I myself had called for a rally on Friday thinking that all the King’s horses and all the King’s men would be out in full force trying to put the market back together again. I was wrong.
In the following ten-year weekly chart of the Dow I have penciled in a few of the important highlights. I’ve shown you the last leg up in the twenty-five year long bull market, ending in October 2007, and I’ve also inserted the initial leg down in the bear market as well as the bear market rally. This is now being followed by the beginning of the second leg down in the bear market. It began on April 27th and will not end until stocks are dirt cheap. Since valuations went to extremes on the upside, I look for them to go to extremes on the down side. In short I would not be surprised to see an average PER of 4 and an average dividend of 9% to 10% when the bottom is finally reached. That translates to a Dow at 3,000, give or take a few hundred points, and will rattle more than a few cages!
Gold will offer a shelter in the storm but then there is the problem of governments trying to take it away. Maybe you live in the US but you decide to store it in Switzerland. So far, so good! Then the US restricts travel and no longer allows wire transfers to and from America without a special permit. How do you justify obtaining a permit for wiring money from Switzerland, with no explanation as to where it comes from. Eventually you could decide to move, but what about your family and extended family. Who do you take and who do you leave behind? Will the one’s left behind be persecuted for your anti-American behavior? I could go on like this for hours but you get the idea.
For an idea s to how the markets will melt down you should read Jesse Livermore’s account of the 1907 stock market crash contained in Edwin Lefevre’s “Reminiscences of a Sock Operator”. In it Livermore tells of how over a two day period, at the height of the crash, not one buyer could be found. I maintain that history will repeat itself. In the end I think you’ll find a lot of ashes as the distortions I’ve talked about for years will finally be purged from the system. What comes from those ashes is another question altogether. The people that created the mechanism to rob you of your wealth more than 90 years ago will simply dig a hole and crawl in until the all clear is given. They are very patient, have amassed tremendous wealth and power, and will simply bide their time. In short they will be back once the dust has settled, and they probably have a plan as to how they’ll extract wealth from China since it will be the next world power. It’s out of their sphere of influence, and will be an irresistible plum to pick. The United States will be relegated to the second tier of economic powers and will have a long, hard road ahead of it if Americans ever hope to recapture lost wealth and glory. The destructive process has now begun and you unfortunately will live to see it all unfold, live on CNN!
*******Stock Market Collapse: More Goldman Market Rigging
By Ellen Brown
URL of this article: www.globalresearch.ca/index.php?context=va&aid=19051
Global Research, May 8, 2010
Web of Debt
Last week, Goldman Sachs was on the congressional hot seat, grilled for fraud in its sale of complicated financial products called “synthetic CDOs.” This week the heat was off, as all eyes turned to the attack of the shorts on Greek sovereign debt and the dire threat of a sovereign Greek default. By Thursday, Goldman’s fraud had slipped from the headlines and Congress had been cowed into throwing in the towel on its campaign to break up the too-big-to-fail banks. On Friday, Goldman was in settlement talks with the SEC.Goldman and Wall Street reign. Congress appears helpless to discipline the big banks, just as the European Central Bank appears helpless to prevent the collapse of the European Union. . . . Or are they?
Suspicious Market Maneuverings
The shorts circled like sharks in the Greek bond market, following a highly suspicious downgrade of Greek debt by Moody’s on Monday. Ratings by private ratings agencies, long suspected of being in the pocket of Wall Street, often seem to be timed to cause stocks or bonds to jump or tumble, causing extreme reactions in the market. The Greek downgrade was suspicious and unexpected because the European Central Bank and International Monetary Fund had just pledged 120 billion Euros to avoid a debt default in Greece.
Markets were roiled further on Thursday, when the U.S. stock market suddenly lost 999 points, and just as suddenly recovered two-thirds of that loss. It appeared to be such a clear case of tampering that Maria Bartiromo blurted out on CNBC, “That is ridiculous. This really sounds like market manipulation to me.”
Manipulation by whom? Markets can be rigged with computers using high-frequency trading programs (HFT), which now compose 70% of market trading; and Goldman Sachs is the undisputed leader in this new gaming technique. Matt Taibbi maintains that Goldman Sachs has been “engineering every market manipulation since the Great Depression.” When Goldman does not get its way, it is in a position to throw a tantrum and crash the market. It can do this with automated market making technologies like the one invented by Max Keiser, which he claims is now being used to turbocharge market manipulation.
Goldman was an investment firm until September 2008, when it became a “bank holding company” overnight in order to capitalize on the bank bailout, including borrowing virtually interest-free from the Federal Reserve and other banks. In January, when President Obama backed Paul Volcker in his plan to reinstate a form of the Glass-Steagall Act that would separate investment banking from commercial banking, the market collapsed on cue, and the Volcker Rule faded from the headlines.
When Goldman got dragged before Congress and the SEC in April, the Greek crisis arose as a “counterpoint,” diverting attention to that growing conflagration. Greece appears to be the sacrificial play in the EU just as Lehman Brothers was in the U.S., “the hostage the kidnappers shoot to prove they mean business.”
The Nuclear Option
It is still possible, however, for the European Central Bank to snatch Greece from the fire and rout the shorts. It can do this with what has been called the nuclear option -- “monetizing” the debt of Greece and other debt-laden EU countries by effectively “printing money” (quantitative easing) and buying the debt itself at very low interest rates. This is called the “nuclear option” because it would blow up the hedge funds and electronic sharks operated by Goldman and other Wall Street heavies, which specialize in bringing down corporations and whole countries for strategic and exploitative ends.
Will the ECB proceed with this plan? Perhaps, say some experts. It could just be waiting for the German election on Sunday, which the ECB does not want to appear to be influencing.