$300 Billion Cash Repatriated in Q1, GS Expects Eventual $1Trillion in Buybacks

In response to the Trump tax cuts, corporations are repatriating record levels of cash.

The Tax Cuts and Jobs Act encouraged the repatriation of profits, which had been subject to additional U.S. levies after it was brought home.

In response to the Trump tax cuts, there was a Dramatic Rise in Corporate Cash Brought Home in 2018.

>In the first quarter alone, multinational enterprises brought home about $300 billion of the $1 trillion held abroad, according to a recent Federal Reserve study. A good chunk of that repatriated money went to share repurchases for the top 15 cash holders, some $55 billion was used on buybacks, more than double the $23 billion in the fourth quarter of 2017.

Tax Cuts and Jobs Act

The repatriated cash is highly unlikely to create many jobs. Most of it will eventually go to buybacks and dividends.

Goldman Sachs expects that the total buybacks from all companies in 2018 could exceed $1 trillion.

There's Nothing like throwing $1 trillion into an already insanely overvalued market.

Corporations apparently have nothing better to do with the cash. Executive stock options, not shareholder interests, are in play.

Mike "Mish" Shedlock

Comments
No. 1-10
dwkeller
dwkeller

Buybacks will lead to Stock gains and Fed and State Taxes. So a flow of cash to States and the Fed to hopefully pay off debt.

CautiousObserver
CautiousObserver

Mish said: "There's Nothing like throwing $1 trillion into an already insanely overvalued market...Executive stock options, not shareholder interests, are in play."

Bingo. Some executives use buybacks to support the stock price while they cash out. From the point of view of those particular executives, throwing $1 trillion into an overvalued market makes sense, especially if the market is near a top. At least one SEC commissioner recently commented "SEC rules do nothing to discourage executives from using buybacks in this way. Its time for that to change.":

Carl_R
Carl_R

Buybacks and dividends are the same thing. They both transfer money to investors. Will the money do more for the American economy sitting in foreign banks, or in the hands of Americans? The question is, what will investors do with it? Will they spend it on consumer goods? Will they invest it in other ways in the US? I suspect some of both.

The recent surge in the trade imbalance is pretty clear evidence that some of it is being spent on consumer goods.

ML1
ML1

Using that repatriated cash for stock buybacks is the height of idiocy. It is like burning 1 trillion dollars.

The tax laws should have been written so that if the company uses repatriated cash for stock buybacks they pay triple the normal tax.

Likewise using it for extra dividends should have been double the normal tax rate.

The low tax rate should have only been available for those companies that use the repatriated funds inside the company to enlarge or develop their business or improve the financial position of their company or pay down company debt.

mark0f0
mark0f0

There's a big difference between "held abroad" and "held in the US but titled with offshore subsidiaries". Most of the alleged "offshore cash" is actually the latter. Apple's "offshore cash" is actually in Nevada and is managed on behalf of Apple's foreign subsidiaries by Braeburn Capital, a subsidiary of Apple. If its drained from the US banking system and US dollar where it primarily exists at the moment, that's a big problem for systemic solvency and for the deposit base of those institutions. How solvent will the US banking system look if its systemically drained of $1T+?

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