My last post talked about the consolidation of wealth. This time I want to address stock buy-backs.
In the first quarter of 2018, Apple Inc bought back over $23 BILLION of it's own stock. Overall, corporations bought back over $249 BILLION of their own stock.
Why do they do this? Wouldn't you think that it was a benefit to the corporations for more investors and private citizens to own their stock? Isn't that the point? To have people invest money in the company for growth? That is the concept behind stocks.
However, that concept no longer holds value when the value of the stock hold more value than the company, itself. Yet this is the situation with many companies today. Even at $600 a pop, how many phones would you have to sell for your company to be worth over $100 Billion? How many people do you personally know that own an iPhone as opposed to an Android? How often do they buy a new iPhone? Did they buy it new or used?
Any way, one of the biggest reasons companies buy back their own stock is for control and direct manipulation of their stock price. There is an inherent danger in this, which is why it was illegal before Reagan, who deregulated that limit.
The danger involved is that with them holding the stock, it makes the individual stock appear more valuable and more stable than it truly is. If they own 50% of the stock, other investors can sell ALL of their stock and the stock NEVER drops below 50% of the peak value. Even though that much of a drop indicates imminent failure.
The other danger is that many companies have stock portfolios which prop up the perceived value of the company. One corporation invests in the stock of another company, who then invests in the first company. Each one presents the stock as actual company value. Yet all the major corporations do this, investing in one another in a complex matrix of investments. As long as this continues with no failure, propped up by QE (Quantitative Easing), it all looks peachy. MSM and financial journals report how well the stock market is doing. The general public listen to Wall Street professionals convincing them how strong the economy is.
Now comes the big problem. It takes only one trigger event to cause a mass sell-off of one major stock. Just one of the largest stocks. There can be many reasons. Bad earnings report. High wages (happened earlier this year). Natural disaster. For military contractors, PEACE talks damage their stock and earnings. (Happened last week.) One large enough trigger means other companies holding that stock start selling. That decreases the earnings of the company selling. That results in other companies selling their stock. That chain continues on and on down the line.
In the end, what will happen is for the first company to sell off much of their own stock. Especially the executives of that company. (Who should be last to sell but are usually first, which is what starts the whole event.) Why? Because they want to salvage their own holdings at the cost of everyone else.
Large investors are the first to know, first to sell. They watch the markets, they have computer programs which sell off stocks at certain prices. They do not have to think about it, it is an automatic sell to prevent major loss. Yet those triggers are built in all the way down the line. Meaning you have a domino effect which can happen in minutes, collapsing the entire stock market.
This is why so many independent economists say the whole system is a house of cards. Each corporation has an earnings statement and value based on the value of another and another and another. They call is diversifying, when it's truly just an illusion.
The ones who will suffer the most will be the small investors. They are most likely to have no triggers built in. They have money in aggregate funds, retirement accounts, 401k's, etc where their investments are handled by someone else. When a stock collapses, that person did not even know they owned that stock in the first place. This is largely what happened in 2008.
So why are companies buying back their stock NOW? Because QE is about to end. It has continued since 2008. Large investment firms have been able to buy stocks using 0% interest loans. Then the tax bill gave corporations more money to spend on their own stock. Then experts have stated that the Federal Reserve is expected to raise interest rates. In June of this year. So if they wait and take out more loans, the loans will no longer be free money to play with.
Once the free loans stop, the stock market increases stop. Then investors start looking for dividends. They will start immediately looking more critically at the earnings potential of the companies themselves. In other words, the curtain will be pulled back and investors will not like what they see. Not to mention, investors only invest in stocks to make gains. With the market going static, they will begin to sell for fear of NOT selling at peak value, making the highest profit. When thousands of large investors use the same tactic, that is when you get a collapse.
What will follow will be numerous corporations and investors declaring bankruptcy. Because all of the values are ethereal and hold no true value, they have nothing to sell. So all the losses are written off. But they do not disappear. The banks who created money out of thin air to offer the loans will still want to be paid. Who pays them? You do. The government creates more money to pay the banks for the created money used to buy stocks that had no value. No collateral. No earnings aside from the valueless stocks. The creation of more money devalues the dollar and increases the national debt in a massive explosion. The devalued dollar causes runaway inflation. Other countries refuse to loan us money and sell off all of their US Treasury holdings. Depressing the dollar further and resulting in higher prices to buy goods from other countries. It all runs in a cycle.
No, you cannot blame Trump for all of this. It's been coming for over a decade.
Ready for this?
The absolute best thing a person can do right now is sell their stocks before all of this happens. If I am wrong in the major part and a major crash doesn't happen, then at the least a drop in the market WILL happen. So sell now, buy back in when that happens. That way you have made a profit. Cash in your retirement account or whatever. If I am correct, what do you stand to lose by contrast?