Hedge fund manager: Stock buybacks should be ‘illegal’

Grand Cayman (CNN Business)1. Buybacks: Veteran hedge fund manager Mark Yusko is deeply skeptical of the stock buyback boom set off by President Donald Trump’s tax overhaul.

“I call it the tax deform bill. It was just a free handout to rich people who pay a lot of money to lobbies,” Yusko, the founder and CEO of Morgan Creek Capital, told CNN Business.
Instead of using its tax savings to speed up the economy, Corporate America is just “buying back stock to stimulate their stock price,” Yusko said from the sidelines of the Cayman Alternative Investment Summit.
Yusko noted that prior to 1982, share buybacks were outlawed by the SEC. “I think they should still be deemed insider trading and illegal,” he said.
Share buybacks are a common practice where companies repurchase their own shares as a way to return excess capital. Buybacks boost demand for shares and artificially inflate per-share earnings.
US companies announced a record-shattering $1 trillion worth of share buybacks in 2018, the first full year since the tax law took effect, according to TrimTabs Investment Research.
After perking up in the first quarter of 2018, business investment on job-creating items like factories and equipment decelerated.
Former Goldman Sachs (GS) CEO Lloyd Blankfein used his first tweet in six months to defend the practice last week.
“The money doesn’t vanish, it gets reinvested in higher growth businesses that boost the economy and jobs. Is that bad?” Blankfein tweeted.
Source: CNN Business

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