c4duser

Where Have All the Buybacks Gone?

On Apr 10 12:44 PM stonebluff wrote:

> Has anyone tackled a study of the damage done by buybacks to American
> financial corporations? I cannot understand the rationale for buybacks
> except when the assets underlying the shares plainly exceed in value
> the price of the shares. Then, and only then, do the shrareholders
> as a group benefit. Buybacks otherwise benefit only EX shareholders,
> who sell into the buyback storm. With buybacks, management is making
> an investment decision with regard to my money; I would prefer to
> invest it myself. Give me cash dividends. I'll invest them where
> I choose. Buybacks carry even a mild odor of corruption, since managers
> with options are commonly large and regular vendors of their companies'
> shares, and buybacks tend to mask the dilution caused by prodigal
> use of options.,

There is an assessment of the impact of stock buybacks on US equity markets on Capital Market Watch that suggests that the total amount of buybacks since 1983, when the SEC essentially gave "safe harbor" for this type of manipulation, with Rule 10b-18.

Based on Federal Reserve data and other sources, the article shows how buybacks financing went well beyond current income, dipping in depreciation reserves and bank credit.

In terms of 2008 dollars, the total impact of the "buyback era" is estimated at $5.7 trillion. The 2008 crash has removed an essential source of funding for buybacks, perhaps for a long time.

See capital-flow-analysis....