Yesterday this Author wrote a masterful Piece on the Timing being right for Corporations buying back their Stock. This morning I read that a minority of the Tribune Board opposes their intended Buyback of $2bn of Stock, because of the poor Tax position it would pose for their own Trust organization. The Author finds he must rewrite the lost Post.
1) There are about five real Scenarios for economic performance at any time: Boom, Float, Stagnant, Mild Recession, and Bust.
2) Excess Corporate Stock worsens the Profitability for both organization and Investors under all conditions except the Boom scenario.
3) Corporations overburdened with Stock issuances will devote less funds to both Recapitalization and Investment projects, in order to fund Dividend payments to all Stockholders.
4) This later fact makes the Survivability ratio much lower for Corporation over-capitalized in low-Profit projects, or underfunded in previous Recapitalization accounts, under the conditions of Stagnant, Mild Recession, and Bust. It shortens the duration of the condition of Float.
5) The Market is marginally lower, and most Corporations possess a high degree of liquidity, even if it is only existent Credit. It is perfect weather for Corporate Buybacks.
6) Corporations with an overburden of Stock will quickly impel a Floating Economy into a Stagnant Economy. Stock Overburden throughout the Corporate sector will bring a Boom to an end. Retained Stock overburden will push a Stagnant Economy into at Mild Recession, and easily into a Bust Economy.
It is time for Corporate Buybacks of Stock. They should actually equal the percentage fall of the DOW in percentage of Stock reduction, as long as the DOW falls no more than 8% per month. There will be great resistence from Institutional Investors, who would consequently face an amplified Tax burden which must be paid. Their admonitions should be ignored wherever possible, because failure of Stock reduction can adversely affect economic performance, and hinder severely all Recovery efforts. lgl