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  • keiretsunikkei keiretsunikkei May 28, 2013 5:21 AM Flag

    A Staggering $286 Billion In Share Buybacks So Far This Year Says We Print 2000 S&P

    "There is another category of buyers of US shares that swamps the margin buyers and the households buying equity funds: Companies. Ironically, traditionally we think of businesses as the supplier of equities, but their most important role now is in buying back their own shares.

    According to Birinyi Associates, corporate boards have authorized the $286 bln in share buy backs so far this year. This is almost 90% more than the year ago period. Some analysts estimate that share buy backs have boosted the stock market by 40% more than it would have otherwise risen. Others say that the share buy backs have boosted earnings per share by 40%.

    Share buy backs support prices as any buying would, but in addition, they reduce the supply of stock. This third chart is from JP Morgan. It charts the number of shares outstanding. It is calculated essentially by dividing the market value by the price. Share buy backs and mergers/acquisitions reduce the supply of shares. Since the end of Q3 2011, there has been a 2% decline in the divisor. They estimate that roughly $100 bln a quarter is being withdrawn. This means that about 2.5% of the US $15 trillion non-financial equities is being withdrawn a year.

    There is another dimension of the share buy backs we will consider here, namely, corporations are borrowing to finance their stock buy back program. US companies, according to JP Morgan research, account for 80% of the global share buy back programs. By borrowing the funds to do so, this has bolstered US credit expansion. If it were not for this activity, US credit expansion would be as miserly as Europe and Japan."

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    • Yes, a lot of buybacks ..... cheap money and the only way to boost EPS in this flat top-line environment. Investing in the business is passé because it doesn't translate into earnings right away and thus the bosses might miss out on some bonus money. We can't have that, now can we.

 
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