I have been reading Dr. Ed Yardeni’s research for close to 2 decades – I have always appreciated his data driven approach to thinking about markets, economics, and stock related issues. (He lives next town over; we have socialized with our wives).

Anyway, I love how he tells this story of delving into Federal Reserve Z1 Flow of Funds quarterly data. There was something about that data series that bothered him – the idea that stock buybacks alone were driving equity prices got his Spidey-sense a-tingling. It sent him down the rabbit hole of Z1.

Ed discovers that the central bank’s Z1 report was erroneously omitting the impact of stock based employee compensation, which account for as much as two-thirds of the repurchases of company stock. He writes this up in a very small book Stock Buybacks: The True Story.

Here is the key quote from the Federal Reserve research folks in response:

“The current source for equity issuance data in the Financial Accounts of the United States does not fully incorporate issuance to employees by public corporations. Staff is exploring how best to reflect such issuance activity in future releases.”

I really like the way Mike tee’s up this conversation with Ed:

Exposing The Big Lie About Stock Buybacks



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