OT - Dow plunges 1,175 - worst point decline in history

[C40_guy]

Originally Posted by echappist

Is that they spent 96% of free cash flow on share buybacks

from a Bloomberg article today

There's nothing intrinsically wrong with share buybacks. The organization is showing belief that its shares are undervalued relative to their market price and are using some of their cash to take that stock out of the market. It tends to drive the value of the underlying stock up and to increase investor confidence.

Alternatives are to use the cash for acquisitions, to invest in the core business, or to leave in cash.

If they do the latter - saving cash for a rainy day - analysts excoriate them.

This is the game that the stock market plays. Nobody plans and invests for pandemics, except maybe preppers and up until recently, the federal government.

[Tony T]

Originally Posted by echappist

Is that they spent 96% of free cash flow on share buybacks

from a Bloomberg article today

NYT said pretty much the same 2 days ago: Don’t Feel Sorry for the Airlines

Instead, American blew most of its cash on a stock buyback spree. From 2014 to 2020, in an attempt to increase its earnings per share, American spent more than $15 billion buying back its own stock. It managed, despite the risk of the proverbial rainy day, to shrink its cash reserves. At the same time it was blowing cash on buybacks, American also began to borrow heavily to finance the purchase of new planes and the retrofitting of old planes to pack in more seats. As early as 2017 analysts warned of a risk of default should the economy deteriorate, but American kept borrowing. It has now accumulated a debt of nearly $30 billion, nearly five times the company’s current market value.

[Tony T]

DOW now below 19k

[thwart]

Originally Posted by Tony T

DOW less than 900 points to:
"On the day Trump was elected the Dow closed at 18,333"

Pfffft.

A little reminder of what Trump said 2-3 wks ago...

And the chart below is from last Thursday... things are looking worse now.

[93KgBike]

Originally Posted by thwart

Pfffft.

A little reminder of what Trump said 2-3 wks ago...

And the chart below is from last Thursday... things are looking worse now.

James 3:14-16

[MattTuck]

Originally Posted by C40_guy

There's nothing intrinsically wrong with share buybacks. The organization is showing belief that its shares are undervalued relative to their market price and are using some of their cash to take that stock out of the market. It tends to drive the value of the underlying stock up and to increase investor confidence.

Alternatives are to use the cash for acquisitions, to invest in the core business, or to leave in cash.

If they do the latter - saving cash for a rainy day - analysts excoriate them.

This is the game that the stock market plays. Nobody plans and invests for pandemics, except maybe preppers and up until recently, the federal government.

Originally Posted by Tony T

NYT said pretty much the same 2 days ago: Don’t Feel Sorry for the Airlines

Instead, American blew most of its cash on a stock buyback spree. From 2014 to 2020, in an attempt to increase its earnings per share, American spent more than $15 billion buying back its own stock. It managed, despite the risk of the proverbial rainy day, to shrink its cash reserves. At the same time it was blowing cash on buybacks, American also began to borrow heavily to finance the purchase of new planes and the retrofitting of old planes to pack in more seats. As early as 2017 analysts warned of a risk of default should the economy deteriorate, but American kept borrowing. It has now accumulated a debt of nearly $30 billion, nearly five times the company’s current market value.

The term stock buybacks is really sort of a catch all umbrella term that encompasses a general behavior of firms in which they purchase shares on the open market.

The activities and decisions before and after that operation are really the issue.

I tend to be against buybacks for a number of reasons, but think that there are a few things that are worth noting. One, MANY buybacks (perhaps a majority) are the result of employee stock option operations. They buy the stocks from the market, then issue them to employees (probably mostly high level executives, but we don't have great visibility), and the main purpose is anti-dilution of existing shareholders.

In this case, buybacks should not be announced as such. They should show up as an employee expense on the income statement, and not be touted as "returning cash to shareholders." or show up on the cash flow statement under repurchase of shares.

Second big point is that there is a good argument, with a number of academic conditions applied, to preferring buy backs to dividends for the shareholders of these firms because of tax implications.

Those two things noted, there are still huge problems with them. Especially when companies borrow money to fund buy-backs. As mentioned above, one common belief is that insiders will be better able to judge the real value of their company and thus buy when shares are undervalued. That just isn't the case, and (as is evidenced now) share buybacks peak near market peaks and dry up during market declines -- just the time that company shares ARE undervalued and could most use the support.

On the idea that execs do buybacks to drive up EPS and help them achieve bonuses, I have no doubt that happens, but that is a failure of corporate governance and failure to create the proper incentives for management to create real lasting value.

[kppolich]

Apple has enough money to buy Disney now....

[C40_guy]

Originally Posted by MattTuck

The term stock buybacks is really sort of a catch all umbrella term that encompasses a general behavior of firms in which they purchase shares on the open market.

The activities and decisions before and after that operation are really the issue.

We are in complete agreement.

[Ozz]

Originally Posted by 93KgBike

James 3:14-16

good one!

[azrider]

Originally Posted by thwart

Pfffft.

A little reminder of what Trump said 2-3 wks ago...

And the chart below is from last Thursday... things are looking worse now.

Just stop.......honestly.......

reminds me of having to tell my 5 year old not to do the same thing 5 times before he listens......

[OtayBW]

Originally Posted by C40_guy

There's nothing intrinsically wrong with share buybacks. The organization is showing belief that its shares are undervalued relative to their market price and are using some of their cash to take that stock out of the market. It tends to drive the value of the underlying stock up and to increase investor confidence.

And the beneficiaries of the stock buy-back are often the executives who hold stock positions or stock options - the very people who are implementing the plan to enrich themselves!

[verticaldoug]

Originally Posted by MattTuck

Opportunities to get crushed like a muppet.

When you say panicking, that is really a euphemism for making taking serious policy action. The issue with this is that there is no policy solution that is actually good for the markets. This is a huge shock to aggregate demand, and we're already overburdened with debt at every level of the system from individuals to sovereigns.

The market SHOULD be going lower, that is the appropriate response to lower expected future cash flows.

Funny, I don't think anyone has ever called me a muppet in the market.

Future cash flows will be lower. How much lower? Yeah, don't know yet. But market is discounting a lot. I think market is over reacting and now we have what seems to be force liquidations. Can't pick the bottom, so all you can do is scale in.

If you look past the index, individual names look interesting. IG paper is widening enough to take a look. If you think US Banks JPM BAC GS can go bust, then yeah. If not, subdebt pref is interesting even with reset to float

[el cheapo]

If things don't get better real quick we are going back to the S&P500 low of 2009...676!

[Tony T]

Originally Posted by el cheapo

If things don't get better real quick we are going back to the S&P500 low of 2009...676!

...intraday low that day was 666

[MattTuck]

Originally Posted by verticaldoug

Funny, I don't think anyone has ever called me a muppet in the market.

Future cash flows will be lower. How much lower? Yeah, don't know yet. But market is discounting a lot. I think market is over reacting and now we have what seems to be force liquidations. Can't pick the bottom, so all you can do is scale in.

If you look past the index, individual names look interesting. IG paper is widening enough to take a look. If you think US Banks JPM BAC GS can go bust, then yeah. If not, subdebt pref is interesting even with reset to float

Not saying YOU are a muppet. Just saying that there are a lot of not well understood risks right now, and while there might be opportunities, there is also a chance that the abuse is not close to done yet.