Is the Stock Market Fake News? Is Your Consciousness Fake News? Who Knows?

Planet Money Episode 995: Buybacks And Bailouts is a winner. The podcast dissects the viral debate between CNBC anchor Scott Wapner and billionaire Chamath Palihapitiya. The Canadian venture capitalist believes that the U.S. federal government should let the airlines fail and not be particularly concerned if hedge fund investors lose their vacation homes in the Hamptons.

What follows is his logic.

Over the past decade, large businesses have made enormous profits. With those profits, you have two choices:

1) You can use the money to improve the company itself. You can pay employees more. You can invest in R&D. You can save a pile of cash for emergencies.

2) You can give the money to investors, making the stock more valuable. You can do this with dividends, or the more recent financial engineering miracle . . . stock buybacks. You take your profits and buy lots of company stock. Then you make that stock disappear, increasing the value of the remaining stock.

Obviously, you can also balance the two, but Palihapitiya believes that great companies do more of number one. They are visionary and look to the future.

The airlines did a lot of number two. So did many companies in the S&P 500. According to Palihapitiya:

Since 2009, the 500 companies in the S&P 500 - so these are the 500 best companies in the world - they bought back $7 trillion of stock and/or issued dividends. OK? That turned out to be more than 90 cents of every single dollar of profit that they made over the last 11-plus years.

So why bail these companies out? They haven't looked to the future. Mainly, they've made the rich richer. Palihapitiya thinks it is abominable that only five cents of every dollar in the stimulus package has been handed to individual Americans.

Now, the stimulus money will find its way to some individual Americans; those that have money invested in the stock market. Because the money will serve to prop up the market and prop up stocks in companies that executed buybacks. So the rich will get richer. And folks not heavily invested won't see much money.

I can see both sides. I want my retirement savings to stay solvent. I want my pension to exist. But I know I'm one of the lucky folks, even if I'm not a billionaire. There's plenty of people who don't own stocks, don't have retirement money saved, and don't have a pension. They need cash. They may not get it . . . or get much. Meanwhile, big businesses will.

Here is a piece of the video. Definitely listen to the podcast first.




In other podcast news, somewhere in the middle of this conversation between Sam Harris and Yuval Noah Harari, they explain why I bought Donna Tartt's The Secret History on Amazon the other day. Harari claims that the AI algorithms used by Google and Amazon and Facebook would have known he was gay years before he discovered this. Amazon knew I would buy Tartt's novel for $1.99 . . . a great deal! They knew better than me what I wanted. Now I'm happy reading it, though I would have never remembered about it with AI assistance.

Is this a good thing?

Who fucking knows. The same goes for the bailout.