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During the 80’s stock buybacks were forbidden, as they were thought to be a form of stock manipulation. But since the 90’s, they have been considered a tax efficient way of returning capital to investors. When they started, companies with good free cash flow used that money to repurchase shares, supposedly at a price below their stock fair value. During the #zirp years however, companies realized they could borrow at very low cost, and used those proceeds to buy stock, not necessarily at prices below fair value, and it was another source of liquidity for the market in top of QE. Now, with interest rates above 5% it doesn’t make financial sense to issue expensive debt to buy back expensive stocks, and as you can see below, buybacks have fallen significantly since the Fed started to hike. That is another reason why the market is struggling to find a floor these days.

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