Buy-Back Binge!

A few blogs past, I noted that stock buy-backs were pumping the market, especially with money repatriated from overseas courtesy of Trump's tax cuts. The result has been stock market appreciation even in the face of rising interest rates, and looming trade wars world-wide, both of which should be pushing the market lower as the free money dries up, and economic prospects dim.

According to Bank of America analysis, the only net buyers of stocks in the first half of 2018 were companies engaged in buy-back activities, especially in the high tech sector.

https://www.zerohedge.com/news/2018-07-04/only-stock-buyers-first-half-were-buybacks-bofa 

Without this buying, stocks would have been flat, or even down. Stocks have not been rising, as a result of company performance but as a result of company buy-backs, especially in the tech sector.

This free cash from tax cuts will dry up soon, and the buy-backs will then slow dramatically. When this happens, the natural effects of rising interest rates and trade wars will be reflected in market prices, which will drop markedly. 

We had a taste of what is coming in February when, just before the tax cuts hit, the DOW dropped more than 1,000 points in one day.  

Trump promised that these cuts would stimulate economic activity and benefit everyone. Selected companies made a big show of giving bonuses to their employees from the tax cuts to illustrate just how wonderful the tax cuts were going to be for everyone. It was all "smoke and mirrors". 

The fact that the vast majority of this cash actually went almost immediately into buy-backs to pump stock prices - which produces nothing and employs no one - shows the continuing moral bankruptcy on the part of the wealthy in the USA. 

When the rich have the vast majority of the wealth and income in that country, and America is a country of rich and poor people only - with the Middle Class merely a pale shadow of itself - the rich will have but one problem left, namely that the poor can still vote. "There is no better predictor of future class warfare than the rapacious greed of the wealthy."