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Stock Buybacks In some countries, including the United States and the United Kingdom, corporations can buy back their own stock in a share repurchase, also known as a stock repurchase or share buyback. There has been a meteoric rise in the use of share repurchases in the U.S. in the past twenty years, from $5b in 1980 to $349b in 2005. A share repurchase distributes cash to existing shareholders in exchange for a fraction of the firm’s outstanding equity. That is, cash is exchanged for a reduction in the number of shares outstanding. The firm either retires the shares or keeps them as treasury stock, available for re-issuance. Under U.S. corporate law there are five primary methods of stock repurchase: open market, private negotiations, repurchase put rights, and two variants of self-tender repurchase, a fixed price tender offer and a Dutch auction. (Wikipedia Feb 2010)
Smooth sailing unlikely
By John Schroy, on May 20th, 2010 | 
Markets can be inefficient for different reasons and persist for long periods. The transition between one type of inefficient market to the next is usually a period of strife and uncertainty which may last five to fifteen years. Looking back at how the economy emerged from previous transitions, I note that in each new period, equity prices started at reasonable levels. This was true at the beginning of the Roaring Twenties, the Post WW II Period, and the Reagan Era. It is as if markets, recognizing prior inefficiencies ‘reset’ and start over. However, for the current market to ‘reset’, it will be necessary for equity prices to fall considerably, which will have dire consequences.
Commonsense Economics:
By John Schroy, on May 16th, 2010 | 
Eventually, at some point, without an efficient market, common stocks become mere baseball cards.
Sooner or later, some Baby Boomer, pressed to pay his bills in retirement, will find that one can’t live off the dividends of common stock and that when everyone is trying to cash out their holdings at the same time, market prices plunge to levels that seemed inconceivable for generations. But it will simply be the cost of allowing an inefficient market to flourish for so long.
This article discusses the concept of inefficient markets and the practical consequences.
Flow of funds analysis
By John Schroy, on March 26th, 2010 | 
The Federal Reserve flow of funds accounts provide a general view of the financial situation of US corporations as of Q4 2009. The question that I would like to address is simply this: To what degree have US corporations been able to improve their financial liquidity since the Crash of 2008? Whereas behavior of US households indicates a shift to more conservative financial positions — with far higher levels of saving than prior to 2008 — corporations do not seem to have taken a similar course.
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