Looting Made Easy: the $2 Trillion Buyback Binge

3. The level of corporate debt relative to the size of the economy is now at its highest level ever.

What can we deduce from these three observations?

First, that stock prices are a bubble and, second, that a significant stock market shakeout could leave some of the nation's biggest corporations teetering towards insolvency.

Of course, none of this is going to stop corporations from engaging in the same risky behavior. Heck, no. In fact, CEOs are actually looking for ways to speed up the buyback process. I'm not kidding. Check this clip from yesterday's Wall Street Journal:

"Companies are increasingly turning to accelerated share repurchase agreements to return cash to shareholders and secure an immediate boost to per-share profits ...But these turbo-charged stock buybacks can backfire, especially when a steep market plunge such as the 5.3% drop in the markets over the past two trading days. That's because a steep plunge in stock prices can force the companies to potentially pay more to buy the shares through an ASR than what they would pay if they purchased the shares over time on the open market. Things can go wrong, said Robert Leonard, head of specialty equity transactions at Citigroup Inc." (Accelerated Buybacks Less Favorable During Market Swoons, Wall Street Journal)

You're darn right, they can go wrong, but who gives a rip? Not America's insatiable CEOs, that's for sure. They're just looking for faster ways to cash in, that's all that matters to them. These guys aren't even thinking about the health of their companies, let alone their customers. Making widgets for the masses is for suckers, right? Corporate honchos have bigger fish to fry, like leveraging up their whole operation to its eyeballs, skimming the cream off the top, stuffing the moolah in an unmarked Caymans account, and slipping out the backdoor before the whole rickety structure comes crashing to earth. That's modern-day capitalism in a nutshell. Slash and burn, Baby, just like big boys at the Pentagon.

One last thing: Just to show the extent to which these corporate mandarins will go to enrich themselves at their company's expense, check out this blurb from this 2014 article at Bloomberg:

"International Business Machines Corp. (IBM) is reducing stock buybacks after an $8.2 billion first-quarter splurge. IBM said last week it won't sustain its rate of share repurchases in the first quarter, when buybacks more than tripled from a year earlier to the most since 2007. The company plans to spend less than $5.8 billion total in the final nine months of this year ... IBM's sales have fallen from a year earlier for eight straight quarters. Declining sales and rising buybacks have squeezed IBM's free cash flow. The repurchases, meanwhile, have taken a toll on IBM's balance sheet. Total debt climbed to $44 billion in the first quarter, up from $33.4 billion a year ago. During the first quarter, IBM issued $4.5 billion of new bonds, clearly used to fund buybacks, Black said. The company tapped the bond market five different times last year, then you have a pretty sizable February issuance, Black said in the interview. I feel like there is investor fatigue on the name." (IBM End to Buyback Splurge Pressures CEO to Boost Revenue, Bloomberg)

Okay, let's translate this into English: IBM spent $8.2 billion in first-quarter on stock buybacks, even though sales have dipped from a year earlier for eight straight quarters; even though declining sales and rising buybacks have squeezed IBM s free cash flow; even though buybacks have taken a toll on IBM's balance sheet; and even though Total debt climbed to $44 billion in the first quarter, up from $33.4 billion a year ago.

Unbelievable, right? And that s not even the best part. The best part is the fact that The company tapped the bond market five different times last year. In other words, they went to the bond market with cup in hand and appealed to gullible investors to lend them more money to pay their lavish executive bonuses, to shower more dough on their worthless, do-nothing shareholders, and to keep this whole ridiculous farce going on a bit longer.

Talk about balls!

Tell me this, dear reader, when can we stop referring to this activity as buybacks and call it by its real name; looting?