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Nov 30, 2015

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. Now, though, they are viewing them with a more critical eye, says Sarah Max writing for Barrons. Worse yet, when corporations sell their bonds, they are no longer using the money to expand or create jobs. Instead, well known companies have gone into debt with bond sales at a pace of over a trillion dollars in the first nine months of 2015. That's more corporate debt than the U.S. treasury took on to form the budget deficit.

That borrowed money got poured back into the stock market to buy back shares to try to boost their share prices. It has been working for years, but suddenly the Law of Diminishing Returns is having its say.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.