In the past 12 months, companies in the Standard & Poor’s 500 have doled out nearly $1 trillion to shareholders in the form of both dividends and stock buybacks, the highest level since 2007. For years, hedge fund managers have been big proponents of share buybacks.
Hedge fund managers are suddenly changing their tunes.
They know that the economy will begin to affect the stock market more and more as the effect of buybacks gets watered down. When the only objective is higher stock price, money management suffers at major corporations.
U.S. corporations have taken on record levels of debt for all the wrong reasons--they borrow the money at two or three percent, then turn around and buy back shares to shrink the supply. Even though the demand for a stock may stay flat, the lower supply can raise the stock price. Corporations are no longer using the money to expand or create jobs, which is bad for long term trends. Steve and Sinclair review a timely article by Sarah Max of Barrons on the subject.
In the Q & A, Steve answers some hard questions on annuities and income planning, clearing up some important aspects of when annuities may or may not be appropriate.