Tags: larry kudlow | share | buybacks | economy | wages

Larry Kudlow: Share Buybacks 'Reoxygenate Economy,' Will Boost Wages

(Kudlow & Co., LLC)

By    |   Thursday, 22 February 2018 05:58 PM EST

Economic guru Larry Kudlow argues that corporate share buybacks will ultimately bolster the entire economy, not just the company gobbling back up their own stake.

A stock buyback, also known as a "share repurchase," is commonly defined as a company's buying back its shares from the marketplace. You can think of a buyback as a company investing in itself, or using its cash to buy its own shares.

“The shares go from the sort of corporate lockbox into hands of ordinary investors, who will probably invest the money more wisely. That money may go into new investments," Kudlow explained to CNBC.

“Wages are going to go up a lot. They're estimating $4,000 higher after-tax income for working people," Kudlow said. “Investment projects are roaring. We're on the front end of the biggest investment boom in 20 years," said Kudlow.

Corporate buybacks, the biggest source of demand for U.S. stocks during the nine-year rally, picked up as the recent slump sent the S&P 500 to 17 times forecast earnings, the lowest valuation since early 2016.

Companies are also boosting repurchases as the fourth-quarter earnings season nears its end, concluding a blackout period that can restrict share repurchases, Bloomberg explained.

“I also believe we're having a huge investment boom, we're on the front end of it," the Newsmax Finance Insider explained. "This is fixed investment ,which hasn't moved in years. In fact, in 2015 and 2016, the last years of President Obama, it was zero. Year-on-year it's running 6.5% and it's spanning the horizons. Business equipment, intellectual property that's an investment boom,” the veteran financial guru and former Ronald Reagan adviser said.

“That money is not put in a mattress. It's put to work to circulate through the economy. It reoxygenates the economy," said Kudlow, author of "JFK and the Reagan Revolution: A Secret History of American Prosperity,"written with Brian Domitrovic and published by Portfolio.

"I think you're going to get it all. You're going to get the buybacks, the investment projects, you'll get the wage increases,” said Kudlow, who served as the Trump campaign's senior economic adviser.

“Share buybacks raise prices of stocks. You've got 54 million people who own 401(k)s, 12 million people who own education savings accounts, and 43 million who own IRAs. That's 109 million people who will benefit in their 401(k)s, etc cetera, by share buybacks,” said Kudlow, who worked as Reagan’s budget deputy between 1981 and 1985.

“Labor unions, particularly government unions, whose money is invested in pension funds, who are 70% invested in stocks, the labor unions are going to get the biggest windfall and the only chance of refunding their pensions is that they should be cheering the stock market,” the CNBC senior contributor said.

Meanwhile, ccompanies snapping up their own shares might provide additional fuel for the U.S. stock market to rebound in coming weeks following a wave of strong quarterly earnings reports and tax cuts that have left more cash on balance sheets.

With most U.S. corporations now having provided their earnings reports, and with overall earnings for the fourth quarter beatings analysts’ expectations, companies resuming or increasing their share purchases might give the market more stability, Reuters explained.

To reward shareholders, companies often buy back shares through long-term plans.

Some companies also buy back shares tactically, with chief financial officers weighing in on changes in share prices. Companies typically suspend those kinds of buybacks ahead of quarterly reports in order to avoid illegal insider trading.

Following deep corporate tax cuts signed by President Donald Trump in December, U.S. companies in recent weeks have boosted their earnings forecasts, and many have said they would increase investments and give more money back to shareholders.

“What we know is that available cash is higher. What we believe is that it’s going to be used for a combination of things: share repurchases, dividend increases, some capex and M&A, and all of those are positive,” said Steve Chiavarone, a portfolio manager at Federated Investors.

(Newsmax wire services contributed to this report).

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Larry Kudlow argues that corporate share buybacks will ultimately bolster the entire economy, not just the company gobbling back up their own stake.
larry kudlow, share, buybacks, economy, wages
Thursday, 22 February 2018 05:58 PM
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