One Chart Tells You Everything You Need To Know About Buybacks

So everybody knows that buybacks are a big part of equity demand in the US, right?

Well, if you don’t know that or otherwise don’t fully appreciate how important the corporate bid has been, look no further than the following table:

Equitydemand

As Mohamed El-Erian noted earlier this week, you can “forget economic and policy fundamentals,” because “liquidity injections” are all that matter these days. And one source of that liquidity is “record corporate profit levels, which translated into continued stock buybacks and higher dividend payments by companies.”

Of course what’s super fun about this is that it’s a giant circle jerk. That is, central banks drive down rates sending investors on a never-ending hunt for yield, low rates plus insatiable investor demand creates a Goldilocks environment for corporate debt issuance, and the proceeds from that debt can be funneled into EPS-inflating buybacks.

If that sounds like financial engineering to you, that’s because it is. And if you want to know why corporate management teams would leverage the balance sheet myopically and mindlessly, we have just one more visual for you via Goldman…

Buybacks

Any questions?

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One thought on “One Chart Tells You Everything You Need To Know About Buybacks

  1. So there is leverage but mostly in the wrong places, this isn’t just in the US. This cycle of debt is getting extremely tight and really has been for 3-4 years, because the fu*king central banks didn’t do their job. Almost always the real markets have something to say and rates should have been used accordingly, instead of “good old boys and girls” manipulating the winners (them) and the losers (us). Cheap $$$$ created stealing on a scale never seen before, there will be blood in the streets. No one wants to own up to these colossal mistakes from Reagan to Trump they are all guilty of political malfeasance as both parties worked the numbers to stay in power…………IT all comes back to “the status quo” and the 1% using “dark money” to stay in power. Who do you think will end up paying the freight when the scam comes apart and the ship goes down??? Do you have a life boat? You better get one and pretty damn quick. Right now owning a little gold and silver might not be a bad idea, you can always use it as a door stop if everything turns out to be OK.

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