US companies have announced more than half a trillion dollars in mergers and acquisitions alone this year.  In the short term, all this deal making has the effect of lifting the entire stock market as every company rushes to get in on the action-every company becomes a potential acquisition target.

But, over the long term, studies show that mergers and acquisitions destroy shareholders value particularly those done when stock prices are at or near their peak as they are now.   Instead of investing in new plants, equipment and products, instead of paying their taxes and giving employees a long overdue raise, big corporations are spending their profits and gobs of newly borrowed money to buy back their own shares and those of other companies.

Meanwhile, the corporations of the S&P 500 spent $477B buying back their own shares, which is the most since the peak year of 2007.  The concept behind buybacks is that they are a tax advantaged way to return profits to shareholders by boosting the market price of shares.  Since the stock market tends to value companies, by multiplying profits per share, times the number of shares, reducing the number of outstanding shares has the arithmetic effect of boosting the stock price.

Buying back shares is so prevalent, that 80% of the S&P companies participated since last year.  Among the most aggressive, have been Boeing, Caterpillar, Cisco, 3M, Microsoft, Safeway and Travelers who all bought back more than 10% of their shares over the last year.  Apple alone has announced it would spend $130B to repurchase their shares, and  two weeks ago even Ford Motor joined the parade with an $18B buyback announcement.

Make no mistake-in the short term the buyback strategy works. Stock buybacks in the S&P500 transformed what would have been an 80% rebound from the lows of 2009, into a 170% increase according to a study by Fortuna Advisors. It would be one thing if most of these stock buybacks were paid for out of the trillions of dollars in cash now sitting on corporate balance sheets.

But as it happens, most of them have been paid for by near record levels of corporate borrowing.  Of the $3.4T dollars of additional debt taken on by non-financial corporations since 2009, almost 90% has been sent to shareholders in the form of dividend and share buybacks.