Goldman Wants To Talk To You About Buybacks Because You’ve Got This All Wrong, Ok?

When it comes to politically-sensitive market topics, you'd be hard-pressed to find an issue that garners more attention among enterprising lawmakers than buybacks. Criticizing corporate cash usage is a great way to prove your liberal bonafides and that goes double and triple in the current environment, characterized as it is by relentless scrutiny of how management teams "spent" the windfall from the Trump tax cuts. Admittedly, I've soured a bit on this issue or at least soured on the idea th

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15 thoughts on “Goldman Wants To Talk To You About Buybacks Because You’ve Got This All Wrong, Ok?

  1. All true but the tax cuts in corporate rates were touted as a way to unleash investment in productive plant, equipment, software, and employee compensation etc. not buybacks. Corporations are paying a declining share of overall tax revenue taxes for years in the US. If you are going to cut corporate tax rates and the tax take of the US government from this source, perhaps a tax increase in long term capital gains is warranted plus an increase in holding period to qualify as long term.

  2. Funding by the government (partially thru tax cuts) of buybacks is the part of MMT that the leaders at Goldman et al can support. But when MMT means funding for the benefit of most of the ciitizenry it is, according to the Goldman’s of the world, not a good idea. The merits of MMT, buybacks, and other government debt funded programs seem to depend on personal perspective not on any measure of economic benefit for society.

  3. Wait a minute! You know, I…I think the Goldman Group has a corporate trading desk that executes share buybacks! Forgive my uncouth tinfoil hat, but I think this may just make them slightly less than vigorously objective.

    To paraphrase Scott Galloway, this isn’t exactly Starbucks railing against offshore drilling, because that isn’t where their bread is buttered. This is Starbucks giving us the health benefits of coffee. Share buybacks are exactly what it is says on the tin. Share price manipulation. And who benefits from that? Share owners, executives who benefit materially from enhanced share prices and EPS, and companies that execute the trades for a fee.

    1. Never mind the data presented in the actual analysis, right? Care to refute any of that? Or are you content to point to the buyback execution desk and shout: “We have found a witch! May we burn her?!”

        1. Are…are you kidding right now? Is this a test?

          “The 247 firms in the S&P 500 Index with EPS-linked incentive pay plans spent 28% of their total cash outlays on share repurchases last year, while the other firms that don’t link payoffs to EPS performance allocated 32% on buybacks, the bank found.”

          That is statistical noise. Some firms, on average, spent lightly less than other firms with exactly ONE control? Not total stock compensation. Not capital gains for corporate officers selling with a smaller supply of shares available. No. Some firms – in aggregate – spent slightly less than other firms. According to data from the company who gets fees from buybacks in a political backdrop where buybacks are under ever greater scrutiny. And from this data, we can therefore dismiss the importance of EPS driven bonuses…because squiggles. Alrighty. If that is good enough to convince you.

          I mean, if I sold seeds, I wouldn’t care if you planted them or ate them.

          1. Harvey, you seem like the type who would be surprised if Ronald McDonald told you that cheeseburgers taste good.

  4. Point being, you pretend to be speaking the “truth” to an audience here that you imagine doesn’t understand self-evident things.

    This isn’t a site centered around a daily charade where we all wake up every morning and pretend like we forgot what Wall Street is and what Wall Street does so we can feign being indignant about it all over again and pretend like we’re mad.

    This is a site where we all accept reality for what it is, and then go and find nuance on top of that baseline reality.

    Are you also going to stand up and point the finger at politicians who decry buybacks and state the obvious there too using the same Starbucks metaphor? i.e., are you going to say: “This criticism is exactly what it says on the tin: politicians who don’t give a damn about buybacks one way or another, but who are just interested in getting votes by shrieking about it on the campaign trail”?

  5. If I was being Gundlachian in stating obvious things, I don’t understand the initial pushback. I disagreed with the initial premise, pointed out the obvious conflict of interest which wasn’t mentioned above, and was told for five years you made meth for the sake of the family. Then I pointed out that the datums were, in fact, politically driven, useless agitprop and now you tell me that you obviously and always made meth because you liked it.

    Okay, fair enough. But I didn’t say a word about the merits of the points of politicians. Scott Galloway is a professor and entrepreneur. Left-leaning, but not a pol. He used that Starbucks analogy to decry Apple blasting Facebook’s use of data, which Apple can do because they do not really make money from data.

    If there was a study that said that people who ate Big Macs and McRibs on a regular basis had lower cholesterol and longer life spans, even if presented with lots of charts, I would be skeptical. If that same study used one control and didn’t take into account time, place, diet, healthcare access, level of exercise, age, income, etc., it would be useless. If it was commissioned by a lobbying firm paid for by McDonald’s, it would be dismissed. If it was actually made by Ronald McDonald in crayon, only Jeff Gundlach would bother dismissing it…

  6. The only reason this has become an “issue” is that a handful of politicians politicized the capital allocation preferences of U.S. corporations. They would prefer to see dividends paid out so they can collect taxes (for the second time) on corporate profits to fund their pet programs. In their minds, all fruits of production belong to government and they should decide what is kept in the private sector.

    This is purely an issue for management and shareholders to determine. By what reasoning is this even an issue in the public arena? What’s next? Will E. Warren and C. Schumer tell Apple how many iPhones they should produce/sell every quarter? I mean this should be matter of public policy too because if Apple sells more phones this means more tax revenue to spend on free education for all or more bank regulation.

    1. And see, this comment underscores why I tend to deviate a bit from my unabashedly liberal stance when it comes to the buyback debate.

      Some of this is clearly political grandstanding. I think critics are mostly correct. But “mostly” here isn’t as clear cut from my perspective as it is on a lot of other issues where I almost always side with Democrats. That is, I’m not entirely sure I want politicians telling corporate management teams how to allocate cash.

      What I would rather is that Congress doesn’t do silly things that exacerbate this situation. For instance, we didn’t need debt-funded tax cuts and debt-funded stimulus in a late-cycle environment when unemployment is sitting at a 48-year low. Had Congress not agreed to that insanity, the buyback issue wouldn’t be as contentious as it is right now.

      Point being: if Congress acts responsibly on things that are its purview, it eliminates the necessity of reaching into things that aren’t.

      1. just to expand on that, if you want to rethink capitalism from the top down, well then fine. change the system in a way that rewards labor and doesn’t perpetually incentivize capital.

        but you can’t constantly perpetuate a system that rewards capital and then act surprised that capital does what capital is prone to doing in that kind of system.

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