Share Buybacks Are Booming Again – And Why It Matters for Your Money

[Inside Wall Street with Nomi Prins]( Welcome to Inside Wall Street with Nomi Prins! It’s the only daily newsletter featuring the insights of renowned author and former Wall Street insider, Nomi Prins. Every day, Nomi shines a light on a massive wealth transfer she calls The Great Distortion. That’s the true cause of the permanent disconnect she sees between the markets and the real economy. And she shares ways you can come out ahead, if you know where the money is flowing. You’ll find all Nomi’s Inside Wall Street issues [here](. If you have questions or comments, send Nomi a note anytime [here]( or at feedback@rogueeconomics.com. Share Buybacks Are Booming Again – And Why It Matters for Your Money By Nomi Prins, Editor, Inside Wall Street with Nomi Prins [About a year ago]( I addressed the controversial practice of corporate share buybacks. I noted that companies using cheap money – or even excess cash lying around their books – to purchase their own shares could distort the true value of those shares upward. And despite the Fed’s rate hikes making the cost of borrowing more expensive and increasing market uncertainty, corporate America has kept up its buying spree – of its own shares. In fact, last year, American companies announced a record $1.26 trillion of share buybacks. That figure was up 3% from 2021. During January of 2023 alone, the total amount of stock buybacks was more than triple the amount in January 2022, or $132 billion. That figure is the highest total to start a year. Morgan Stanley’s buyback execution desk has already seen a 5% increase in orders for 2023. And last Tuesday, in his State of the Union address, President Joe Biden announced his plans to impose a 4% tax on this practice. So today, I’ll discuss why the increase in buybacks is important for your money, and if Biden’s speech is any cause for concern… Recommended Link [Finally, gain financial freedom in 2023 using this method]( [image]( Master Trader Jeff Clark achieved financial freedom at the young age of 42. He profited through the massive stock market crashes in 2000, 2008, and 2020 and helped thousands of people, from teachers to doctors, achieve financial freedom… some starting with as little as $100. [Watch his video here and get the name and ticker of the One Stock too.]( -- Buybacks Lift Stock Market Values First, let’s take a step back and review what buybacks are. A share buyback occurs when a company purchases its own outstanding shares from the market. As a result, its remaining outstanding shares could have more comparative value to investors. It’s a simple demand versus supply equation. Let me explain why. As companies reduce the amount of their shares outstanding, they can push the value of the remaining shares outstanding higher. That’s because they are acting as a source of demand for their own shares, then taking them out of market circulation, thereby reducing their supply. That means the earnings per share grow automatically higher, because total earnings are divided by a smaller number of shares. [Featured: “What I’ve learned is going to shock most people...” – Nomi Prins]( It’s a corporate price distortion mechanism. The company hasn’t necessarily become more valuable, it just appears that way. But there’s a plus side. This practice of reducing the amount of shares in circulation can render existing shareholders' securities in the company more valuable and the dividend paid per share higher, too. That’s why paying close attention to which companies are buying back shares could translate into a big buying opportunity for you… Recommended Link [Boost your retirement from $4 stock?]( [image]( A massive $130 trillion energy shift is underway. And this $4 stock is at the center of it all. It’s backed by 5 billionaires. And Ph.D. Economist and Investor Nomi Prins just put together a quick 30-second demonstration to show you why this tiny company’s breakthrough could touch every man, woman, and child on the planet and make you rich in the process. Watch the 30-second demo [here](. [Watch now.]( -- Who’s Buying Back Shares? (Hint: Everyone) Traditionally, the big tech and banking sectors have been the most aggressive sectors in terms of share buybacks. And we are seeing that shape up again this year. Facebook’s parent Meta Platforms (Meta) stock put in its best stock performance about a decade after the firm announced a $40 billion buyback program. Its share price jumped by 23%. This announcement marked a 43% increase over its 2022 stock buybacks of $28 billion. The last time its shares jumped as high so quickly was in July 2013. Meanwhile, some of the market’s biggest stocks, or as I like to call them, “buy-backers,” are the big Wall Street banks. Yet, as I [wrote to you]( last year, while the Fed was launching its aggressive rate hike program, the banks submitted results of stress tests. These tests indicate how healthy they would be if they had to withstand a major financial shock. As a result of poor stress test results, both JPMorgan Chase and Wells Fargo paused their buyback programs last summer. But now, as the Fed has entered [Stage 1 of its three-stage pivot]( which involves easing its interest rate hikes, Wall Street is back to planning its share buying with a vengeance. JPMorgan is targeting a $12 billion share buyback amount, as what it calls a “good” number. Wells Fargo has also announced it will step up its buyback program this year. What’s more, at its first quarterly earnings meeting this year, Bank of America stated it expects to increase the pace of last year’s buybacks. Plus, the large global banks UBS and UniCredit announced an increase in 2023 buybacks after posting strong earnings results to start off the year. But tech and banks aren’t alone. The energy sector has been flexing its buyback muscle, too. So far this year, the biggest buyback announcement came from Chevron. Its $75 billion figure made up more than half of the total buybacks announced for January. (Even without them, January’s buyback total stood at $57 billion, the fourth-largest total for January ever.) [Chart] After a banner year in 2022, Chevron, the second-largest fuel company in America, announced $75 billion in anticipated share buybacks for 2023. This is interesting because not only did the White House decry Chevron’s buyback size, but the government had already decided to dissuade American companies from stock buybacks. [Featured: Make 2023 all about investing for your retirement]( You see, there’s a new law that takes effect this year that slaps a 1% tax on buybacks. That law is called the Inflation Reduction Act. We’ve spoken a lot about that act with respect to elevating parts of the domestic supply chain and investment in energy and infrastructure development. But it’s Sec. 10201 of the IRA that sets a non-deductible 1% tax on stock repurchased by publicly traded domestic corporations. Even so, you can basically ignore that law. Because U.S. firms don’t care about it. To Chevron and other mega companies, that tax is like a small traffic ticket on the highway to higher share prices. And that’s much to President Biden’s chagrin, which is why he suggested quadrupling the tax in his recent State of the Union address. In Biden’s own words: Corporations ought to do the right thing. That’s why I propose we quadruple the tax on corporate stock buybacks and encourage long-term investments. Despite Biden’s efforts, a 4% tax on buybacks – which seems unlikely to pass amidst a divided Congress – won’t dent the stream of buybacks, either. Recommended Link [The One Ticker Retirement Plan]( Over the Shoulder Demo Now Available [image]( Market Wizard Larry Benedict crushed the market in 2022. But he didn't do it with a “traditional” method… For a limited time, he’s sharing a free over-the-shoulder “demo” of his strategy in action. It takes less than 10 seconds… [Watch it here.]( -- Buybacks Offer Investment Clues [Last year]( I said that corporate stock buybacks would hit another record in 2022. I said: That means more money coming in. And that tells me that buybacks will hit another record in 2022… And as it turned out, even with the dismal market behavior, they did hit a record. In fact, in 2022, the S&P 500 buyback index outperformed the S&P 500 index. [Chart] Just think about that. Without the extra demand coming from companies for their own shares, it’s likely that the market could have looked much worse last year. But all this buyback activity can propel stock prices higher, especially if other factors are involved. Greater buyback announcements, buyback trade execution, and retail and institutional demand can all contribute to higher share prices. And when you throw in the fact that we are in Stage 1 of the Fed’s pivot, there’s reason to believe this early year rally has legs. That’s why we think that 2023 will be an even bigger buyback year – and set another record. And one way to take advantage of this trend is through the PKW Invesco Buyback Achievers ETF. It’s an exchange-traded fund that tracks the 100 stocks with the highest buyback ratios. Regards, [signature] Nomi Prins Editor, Inside Wall Street with Nomi Prins --------------------------------------------------------------- Like what you’re reading? Send your thoughts to [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=Inside Wall Street Feedback). --------------------------------------------------------------- MAILBAG Last week, after President Joe Biden’s State of the Union address, we received some interesting comments from readers… My math is saying this quarter increase should be the last. The higher rates have slowed reinvestment. Now big Joe Biden wants to limit corporate stock buybacks? Corporations will have a mandatory 15% tax. – Aaron G. He has already passed enough pork-laden spending! The one wrong fact that he repeats over and over is that he added 12 million jobs when the Labor Department says 2.7 million. How does he get away from such reckless and untruthful behavior? I am all for onshoring, but to date, little has happened. One step forward and two regulatory steps backward, such as closing down Minnesota mining. When I stop seeing shortages of this, then I will believe onshoring has happened. – Richard S. Meanwhile, Thomas has something to say about paying interest on debt… I would like to point out that when interest is paid on debt, this money does not just disappear! When interest is paid, someone pays it and someone ELSE receives it. A lot of people seem to think that this money is just gone somehow. It's the same with any money spent. Someone pays and someone else is paid. For example, when more money is used to buy gasoline, it does not reduce overall spending in the economy. Spending on gas is still spending. Someone gets that money. – Thomas R. Finally, Abigail expresses her gratitude for our content. We appreciate your lovely comment and readership; we always strive to deliver the best content and hope that you will keep writing to us. Hi there, I just wanted to say that I love your content. Keep up the good work. My friends from Thailand Nomads recommended your website to me. – Abigail S. After reading today’s piece about corporate stock buybacks and Aaron’s comment, do you think the 4% tax will do much to actually impact companies? Write us at feedback@rogueeconomics.com. IN CASE YOU MISSED IT… [The #1 stock for 2023]( Investment expert Brad Thomas knows how to pick stocks. He bought Starbucks back in 2006… He bought Nike in 2003… And he and his team delivered a perfect track record from March 2020 to September 2022. Now, for a limited time, he’s revealing his #1 stock for 2023… [Get its name here.]( [image]( Get Instant Access Click to read these free reports and automatically sign up for daily research. 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