Bye-Bye Buybacks?

Welcome to StockUp, where we're always socially distant, but close to you in spirit. -------------------------------------------------------------------------------------------------- [View this email in your browser]( Welcome to StockUp, where we're always socially distant, but close to you in spirit. This week, why the share repurchases that fueled our recent bull market could be a thing of the past (especially for airlines). Plus, the single craziest stock statistic from the COVID-19 crash, and why desperation drove some institutional investors to hand the federal government $47 billion in free money. — Nathan Alderman, Stock Up Editor CORONAVIRUSES AGAINST HUMANITY COVID-19 Update: Let's All Think About Kittens Instead, Okay? --------------------------------------------------------------- Unfortunately, we don't have much good news to share. As of Friday, diagnosed cases and deaths in the U.S. alone had surged to more than 97,000 and nearly 1,400, respectively. The U.S. now has the most confirmed cases of any country in the world (though its per-capita count remains lower, and many other countries may be undercounting). U.S. case numbers appear to be rising faster than any other country's, with no sign of a flattening curve. The virus has spread to all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, and somehow, Guam. After 3.3 million people filed for unemployment last week — the biggest one-week number in U.S. history — Congress has now passed an unprecedentedly gargantuan $2.2 trillion bipartisan stimulus deal that blends modest, one-time payments for everyday Americans, help for hospitals, state governments, and small businesses, and half a trillion dollars in bailouts for large corporations. But hospitals are still perilously low on vital supplies and protective gear for their staff, as states are forced to fight one another for shipments. Testing is ramping up, but in many places, the materials needed to conduct tests for the virus are also unavailable or scarce. COVID-19 remains mild in a majority of patients, and it's most lethal to the elderly and those with underlying health conditions. However, less fortunate patients of all ages — including significant percentages of young and otherwise healthy people — have required hospitalization or intensive care, straining the U.S. medical system. And despite optimistic predictions from some that we'll be able to reopen the country in a matter of weeks, most experts say we'll need to stay isolated significantly longer than that before things get better. Remember, evidence suggests that even before they show any symptoms, unknowingly infected people can rapidly spread the virus to others. Staying away from others as much as possible remains a crucial step in curbing the spread of the virus before it overwhelms hospitals' ability to effectively treat the afflicted. Remaining at home could literally save the lives of your loved ones, friends, and fellow citizens — and make life a lot less difficult for the hard-working folks in your local hospitals. Should you feel the need to pause here to raid your stay-at-home supplies for some sort of restorative beverage, we understand. Go ahead, we'll wait. All set? Good. Now let's talk about what all of this means for Wall Street. --------------------------------------------------------------- SOMETHING SOMETHING ANTS & GRASSHOPPERS Hasta La Vista, Buybacks? Most people didn't notice at the time, but a big part of the market's recently ended, record-long bull run — especially toward its conclusion — came from companies buying back their own shares. Think of a company as a pizza, and each share as a slice. The more shares a company has on the market, the more slices there are in the pizza, and the less of the pizza each slice represents. By buying up their own shares and taking them out of circulation, companies could divide their pizza, so to speak, into fewer pieces, meaning every remaining shareholder would get a bigger slice. That also means a company's earnings are divided into fewer pieces, leading to higher earnings per share, which gives the appearance of better performance. This spurs investors' interest, leading them to buy shares and increase those shares' prices — a win for existing investors and company management alike. As long as the company has plenty of excess cash to spare on these buybacks, and as long as it's buying back shares at a reasonable discount to what the company's underlying business is actually worth, this isn't a bad idea. Unless, of course, the company wasn't also socking away enough cash to cover its expenses during a rainy day, or a business downturn, or a teensy-weensy global pandemic. And if companies are blowing through their available cash, then taking on massive amounts of debt to fund those buybacks? Yikes. The current Senate plan prevents any companies that accept loans from Uncle Sam from buying back their own shares until one year after they've repaid the full amount. And even otherwise healthy companies will probably need their cash — both their reserves in the bank and the cash flow coming into their coffers — for more important things than share repurchases for the foreseeable future. Also, with buybacks getting a bad name among the general public, some companies may not want to sully their reputations by spending big on their own shares. We've rounded up a few insightful Foolish takes on the buyback debate: - Fool Dan Caplinger argues that investors shouldn't expect the same gains to which they've grown accustomed [if buybacks dry up](. - Airlines in particular have taken a lot of flak for spending billions to buy back their own shares since 2010, then turning around and begging Uncle Sam for billions more to save their bacon. But Fool Adam Levine-Weinberg notes that while figures for the industry look bad overall, [one company was the main culprit ruining it for everyone else.]( - That doesn't let airlines as a whole off the hook, says Fool Brian Stoffel — especially since [executives used buybacks to conceal their own ginormous bonuses](. --------------------------------------------------------------- Already subscribed to a premium service? [Click here]( to view your subscriptions. Not a member yet? [Click here]( to sign up! --------------------------------------------------------------- NOT UNDER YOUR MATTRESS Watch: Where to Invest $1,000 Now [Where to Invest $1,000 Now]( Stocks have taken a beating so far in 2020. Some experts believe the entire market looks cheap, but is it really? We believe there are still great companies with sustainable businesses that are worth investing in right now. --------------------------------------------------------------- LOOK OUT BELOW The Craziest Statistic From the Coronavirus Market Crash Until stimulus-related exuberance gave it a bit of a bump earlier this week, the S&P 500 had fallen more than 30% from its Feb. 19 peak — just the sixth time it's plunged so steeply in the past 50 years. But that's nothing. Ready to get your mind blown? In that five-decade time frame, it's taken an average of 336 days for the market to fall 30%. This year, stocks did so in 30 days. The only time in history stocks have cratered faster came during [1987's Black Monday]( when the S&P fell 20% in a day, and more than 30% in just 14 days. By comparison, it took 363 days — nearly a year — for stocks to fall 30% at the onset of 2007's global financial crisis. And when you factor out this year's crash and the 2007 crash, the other four 30%-plus drops over the past 50 years averaged almost 18 months in duration! So, what does all of this mean? Well, nothing good for the U.S. or global economy, obviously. But history does point us toward one silver lining from stock swoons such as these. To see how you might be able to scrape some goodness out of this bad news, [read the rest](. --------------------------------------------------------------- ALEXA, WHAT'S THE LONGEST ANYONE HAS EVER SPENT INDOORS? [Smart Speaker] Not sure what to ask your smart speaker? Keep up with what's happening in the market by adding our daily flash briefing to your home assistant. Just look for The Motley Fool on your Amazon Alexa or Google Home app, click subscribe, and then you're good to go. --------------------------------------------------------------- SHUT UP AND TAKE MY MONEY Don't Do What These Wall Street Investors Just Did Every week, the U.S. Treasury auctions off three-month bonds. Under normal circumstances, investors buy these bills, and three months later, they can get their money back, plus a little bit of interest from Uncle Sam to say "thanks for lending us the cash." This week ... went a little differently. For the first time since 2015, buyers gave the Treasury their money knowing full well they'd get a whopping 0% interest — as in zilch, zero, nada — in return. They essentially handed the federal government their money, said "Hold this for us for three months," and then walked away. And they didn't just do so cautiously; large financial institutions bought a total of $47 billion in zero-interest bonds from the Treasury. That's enough to buy the 18 biggest NBA teams combined and still have $1 billion left over. (Sorry, Milwaukee Bucks, but you just missed the cutoff.) Why did big banks and other financial powerhouses do this? Well, keeping large stacks of cash around can be kind of expensive to secure. And in these risky times, institutions want to know their money is parked somewhere safe. The federal government, with its near-zero default risk, fits that bill nicely. Even if it's not paying any interest for the privilege of holding onto all that cash. Luckily for Fools, this is one case where not having a [phenomenal cash hoard]( comes in handy. For more information on where you can find places to stash your money that will keep it safe and pay you more than 0%, [read the rest](. --------------------------------------------------------------- DROPPING THE R-BOMB FEATURED PODCAST [Motley Fool Answers]( Recession. Recession? Recession! We're all reeling from the financial fallout of the COVID-19 outbreak and facing the likely threat of a recession. Robert Brokamp explains what that means and offers his best advice on how to get your financial life in order and tap into emergency sources of money. [Subscribe on iTunes]( --------------------------------------------------------------- VAMONOS, AMIGOS Quick Reads - [Be prepared just in case:]( The stock market almost certainly won't close. But what this article presupposes is: What if it does? - [It looks like you're trying to reopen the economy. Would you like help with that?]( Relative optimism from Bill Gates about how soon we may be able to start getting back to normal. - [Uncle Sam gets out the checkbook:]( How the government's plan for direct cash payments to Americans — possibly including you — will reportedly work. --------------------------------------------------------------- SEND MORE CAT PICTURES Social Media Post of the Week [Image - If you want to make money in the stock market, you have to be willing to endure downturns like the one we're going through right now. Caption - Long-term investors know that if you want to make money in the stock market, you have to be willing to endure downturns like the one we're going through right now. ]( [See all our Instagram posts!]( Join the 1,300,000+ people who follow us! 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