Stock Buybacks are Screwing Americans
And, Bankers and Boardrooms are Elated
“As the scale of stock buybacks grows…….it has become increasingly clear that there is something deeply flawed with the way corporations are currently run, as well as the rules that incentivize certain corporate behaviors, particularly when compared to the model of corporate behavior we need companies to follow for a healthy and well-functioning economy.”
Introduction. This is Part 2 of my two part series on how the stock market has been forced upwards in possibly illegal ways to enrich the elite people that will have all the stuff you used to own. Part 1 discusses even more impactful Fed actions to also boost the market, keep bonds afloat and - more importantly - keep our government solvent with artificially low interest rates. You can read Part 1 here.
NOTE: Nothing contained in this article should be construed as investment advice. Do your own research.
Stock buybacks, or repurchases, have grown substantially since the 2008 recession which began Quantitative Easing (QE) and has continued unabated with no end in sight.
Japan started QE in 2001 to boost their economy. They are now awashed in so much debt as to make ours seem like a used car loan. But be forewarned, even in America it is getting vary dark out there and at some point very soon, it will be a SHTF moment.1
At the same time that the Fed boosted the US Stock Market, they also bumped up the the “performance” based compensation packages for CEOs and officers of American businesses that are largely based on stock performance. Salaries are nothing compared to the value of stock options.
This is one reason why once Conservative Corporations became Liberalized and fell on the sword of Government control and “Wokeness”. The game was brilliant and quite simple - a case of simple bribery to install an umbilical cord between Corporate America and the US Government.
What we have witnessed over the last decades has been a perfect plan for moving corporate boardrooms away from traditional, free market Capitalism (and generally “conservative” social and family views) into a new form of pay to play TechnoFascism.
All of this has occurred with little pushback from stockholders. Why? They too were giddy with rising stock prices from the magical increases in earnings per share from buybacks, artificially lowering stock skyrocketing PE ratios.
This all played out with zero regard to the effects of stock price manipulation on our economy and, worse, the employees that work for those companies that are just trying to earn a living.
CEOs and Officers in large companies have been highly incentivized to buy back their own stocks 2, pushing prices higher and higher in what may be the best Ponzi scheme imaginable for the upper crusters. They were all in on the Fed game to boost the stock market (also key to the Real Estate boom which collapses with stock market) and immoral at the core. These Corporate kingpins needed just a little push to add fuel to the stock market conflagration. They gladly complied.
What about Me?
If you didn’t have chronic illnesses or kids in College, you might have been able to sock money away in your 401-K. However, those gains came at the cost of rapidly rising (unreported) inflation and, like the Japanese, increasing taxes to pay for increasing debt on you and future generations.
If you ever worked for a large company, worked your tail off, met your performance objectives handily and still got a crappy 3% raise because of fake Government inflation reporting, now you know why. It’s a masterful play to keep expenses down from the lies of inflation so profits can be diverted to top management from your wages which are benchmarked to the Government CPI.
Profits that should have gone into wages, salaries and capital investments for the future went into their own stocks and into the pockets of top management and others lucky enough to get in on the bump up the stock price game.
Buybacks takes shares off the market. This makes stocks go up as earnings per share increases. The executives and officers approving your measly raise got handsomely rewarded with their options and other stock price incentives.
In 2024, the top 10 CEOs in the United States made around $885 million in 2024 — almost a billion dollars.
CEO pay has skyrocketed over the decades, growing more than 1,000% since the 1970s.
Most of a CEO’s income now comes from stock awards, meaning their earnings often depend more on stock market performance than company results.
Brave New World
In the normal world of Capitalism and “free enterprise” there is a natural repulsion between Corporate America and Government. Now, both sides have found a way to make each other powerful and wealthy beyond measure.
Today, the “excess cash” generated by low wage gains, QE monopoly money and loans at artificially low interest rates (relative to actual inflation) goes into buybacks rather than mundane things like capital spending and pay raises that help employees keep up with the real cost of living.
That’s how Buybacks are screwing America.
When I first wrote about the causes for the greatest wealth transfer in US History (Another Big Lie) in Dec. 2020 stock buybacks in the S&P 500 had set a record $806.4 billion in 2018. Since 2018, there has been an amazing $6.2 Trillion increase in buybacks. That this amount of money is considered by the SEC to have minimal manipulative effects on stock market valuations is laughable.
The effects on the market are nearly as consequential as the QE program and the US budget designed to financially boost and keep in line our now Woke American Corporations and the Too Big to Fail Banks that make up nearly 50% of the S&P 500 market value.
US Stock Market Effects
Why Aren’t Stock Buybacks Illegal Stock Manipulation?
Lets start with the basic definition of stock price manipulation used by the Securities Exchange Commission (SEC):
15 U.S.C. 78i prohibits deceptive trading practices that create artificial price movements or mislead investors.
In 1982, the SEC created the Safe Harbor Statute. With exceptions for blatant fraud and not following some nonsense rules for how purchases are made, the Government effectively made buybacks legal. Until 1982, buybacks were considered illegal.
Why was this done? Simply because buybacks do in fact raise the price of stocks and, therefore, Corporate boardrooms needed protection for nothing less that what used to be considered embezzlement of corporate funds for their own purposes. Here is what the SEC says:
“SEC Rule 10b-18 allowed for companies to put in place stock buyback programs and carry them out after approval by the board of directors, and sets up a non-exclusive safe harbor against allegations of market manipulation under Sections 9(a)(2), 10(b), and Rule 10b-5 solely by reason of the manner, timing, price, and volume of the repurchases.”
Then, the SEC also says this about exceptions to immunity (i.e. legality):
“The safe harbor would not be available if the repurchases are made as part of a manipulative scheme to influence the closing price of a company’s securities, or are done to mask other motives, such as inflating or manipulating short-term earnings.”
So, the SEC grants and then takes away the immunity.
Beyond the immoral nature of buybacks which transfers wealth from the many to the few, it may also be a criminal action no longer considered a crime.
The pressure is on the SEC because the game is so painfully obvious. Even the SEC is now having to investigate some buyback programs that don’t even follow the mindless new Safe Harbor rules.
The Case for Removing the Safe Harbor Protection
I contacted the SEC to make the case that nearly all buybacks were actually illegal stock price manipulation by their own definition 3.
Notwithstanding the SEC immunity contained in the Safe Harbor context, consider that under current rules companies must report to the SEC how much of their own stock they will purchase in any given buyback plan but they do not have to report when and how much they will buy at each buying session. Without a timing requirement, they can buy their stock whenever they want to effectively put a floor on the price if there is bad news on earnings or other calamity, like the Boeing 737 Max fiasco. That, by SECs own definition, is stock price manipulation because prices increase not from a free public market, but by insiders who benefit directly from rising stock prices. Another reason it’s price manipulation is to minimize impending price drops.
Boeing had one of the biggest buyback programs in US history just prior to the press reporting that their planes were crashing all over the world due to autopilot software issues that they knew could ground the fleet. And that’s exactly what the FAA did in 2019 and in 2024 with the same aircraft (failure with door locking mechanism).
Boeing spent $11.7 billion in 2017-2019 on repurchasing stock before suspending buybacks in April 2019 because of the 737 Max crisis. I would suggest that they likely knew what the 737 Max “problem” was going to do to the company. It’s better to have your stock drop 50% after you boosted the stock by 100%.
Even Trumps misplaced confidence in Boeing won’t likely stop the company from an economic crash at some point (bailed out by taxpayers once again for “strategic reasons”) due to years of DEI and ESG nonsense that put low skill people in high skill positions. All because those people look or act in a certain way.
The results of all this has been devastating. But, you can only keep a dead cat from bouncing so long. That dead cat is also manifested in our Stock Market.
Many economists will tell you that the only world governments that buy their own industries as Trump is now doing with the Malevolent 7 AI companies, rare earth miners, Intel and Boeing are either Communist, Socialist or Fascist. None are Capitalist. Even for so called “Strategic” reasons, this sets a very bad precedent for future administrations because this is how Dictatorships are created.
How The Game Works
If Corporate America was to buy their own stock at prescribed times reported to the SEC unaffected by market timed purchases like dividend payouts, this would be credible and probably legal. Although one could argue it’s still not a wise use of funds for most companies long term future. After all, out of the thousands of public stocks it seems odd that only MY company’s stock is the one to buy.
Here is the stock repurchase program reported to SEC by Meta Platforms (aka Facebook):
During the nine months ended September 30, 2024, we (Meta/Facebook) repurchased and subsequently retired 65 million shares of our Class A common stock for an aggregate amount of $29.81 billion, which includes the 1% excise tax accruals as a result of the Inflation Reduction Act of 2022. As of September 30, 2024, $51.28 billion remained available and authorized for repurchases.
The timing and actual number of shares repurchased under the repurchase program depend on a variety of factors, including price, general business and market conditions, and other investment opportunities.
Meta Platforms, Inc SEC 10-K
In the Meta/Facebook example, one company states quite clearly that market prices may effect the timing of their purchases. The Technocrats don’t even try to hide their real intentions because the game has been fixed. At least they are telling the truth about lying - along with nearly all of the major public corporations playing in the game.
The end result of all this is that many large public companies boosted share prices well beyond natural market valuations because they manipulated the market, some with Government cash via loans with artificially low interest rates relative to inflation (read about that here in Part 1 - The Fed).
And when their stocks go up, other companies that don’t have big buyback programs also go up because so many of these companies are in index funds which are tracked and bought by individuals and big institutions.
Everybody wins. Except those not on the inside.
Combining Govt/FED actions with Corporate Buybacks means that even in the face of the debt driven economic disaster for 1st world (for now) governments and Regional or World Wars we find ourselves in, the stock market can reach new and ever more insane highs.
That’s the answer to the question of the never ending stock euphoria the investment gurus don’t even want to ask. They tell us the market is real. It is not, at least not without the massive costs of unreported real inflation and ever expansive government.
Irrational Exuberance
Stock prices today are nearly as high as the Tech Bubble which nobody thought we would be stupid enough to repeat. Not only are we repeating the tech bubble, but its based on exactly the same buildup. In 2000 it was the Internet. Today, it’s also Internet based, but with an AI emphasis. Same difference.
Ultimately, reality sets in (like inflation has) and stock prices will fall massively due to excessive historical PE ratios and higher interest rates, but not after massively inflated gains have occurred.
Can we stop the crash which some smart people like Catherine Austin Fitts says will be the worst in US History? Since the Central Banks and their Government rulers are so heavily invested in the Ponzi game, I would say probably not, absent some form of People's Revolution.
One way to slow down the money game cartels is to say NO to digital in every way possible. That’s where the power will reside if their central bank digital currency is accepted by Congress.
Indebted and bloated governments all though history discovered that eating cake only goes so far for what George Carlin says are people “not in the club”. Especially when all that’s left for the useful idiots staring at smartphones all day are UBI crumbs paid for with programmable fiat. If you’re a good boy.
In the meantime, if the little guys remain in the illegally manipulated stock market, just like the Pre-Depression “shoeshine boys”4, it will be last in, last out.
Sic Semper Tyrannis
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Possibly tied to the 1999/2000 tech bubble trailing 10 year PE ratio for the S&P 500.
If no cash, no problem. Corporations issued bonds on the cheap with Fed induced artificially low interest rates to buy their own stock, boosting their compensation, compliments once again to the Fed.
No acknowledgement of my letter requesting an interpretation on stock manipulation from the SEC. Surprise.
When the first SEC chairman Joseph Kennedy heard shoeshine boys on the streets of New York talk about the next hot stock right before the October 29 crash, he knew the collapse was imminent.