Monday, April 15, 2019

Since 1982 - This is all you need to know about the US Stock Market! (We have been and are being manipulated!!)

Of note, one of the charts in the defensive report had the following informative summary on the history of buybacks, in which Goldman explained that "in the past buybacks were not illegal [ZH: they were illegal prior to 1982] but were typically avoided because US companies feared government charges of market manipulation." As a result, for decades US companies returned cash to shareholders almost exclusively via dividends, and from 1880 to 1980, the dividend payout ratio averaged 78% of earnings (companies also had the option to repurchase shares via tender offers, in which they would buy a certain amount of shares at a pre-determined price/time, however the price moving impact of such operations was virtually nil).
Then, everything changed in 1982 with the passage of Rule 10b-18, which provided companies a safe harbor against charges of market manipulation when repurchasing their shares.
In short, buybacks were illegal until 1982 for a reason - market manipulation - and then they gradually became mainstream, with  stock buybacks and dividends rising to 90% of the cumulative payout ratio of S&P 500 earnings in the 2002-2018 period. The cherry on top: in 2019, Goldman forecasts companies will spend a record $940 billion on buybacks (with $1.1 trillion in buyback announcements) up 16% from the prior record hit in 2018.