In response to an FT article by Mark Roe on 6th September 2015, entitled 'Share buybacks are not the problem'
The 'sunny disposition' presented here overlooks what I believe will turn out to be the most important point.
Many buybacks are being funded by debt taken on specifically for the purpose, which will make balance sheets look very different when interest rates rise and debt is rolled over, which it will be in the next downturn. Despite the increasing trend to 'move the target nearer to the arrow' in order to beat Wall Street EPS estimates, buybacks are being used complete the charade of corporate health. Here's Oliver Renick from a Bloomberg article in June:
"...proceeds from debt sales to send cash to stockholders has never been more popular.
Standard & Poor’s 500 Index companies listed buybacks or dividends among the use of proceeds in $58 billion of bond deals in the past three months, the most on record, according to data compiled by Bloomberg and Sundial Capital Research Inc. More than $460 billion in repurchases were announced during the first five months of 2015, on pace to top last year’s record...
...An S&P 500 index measuring the performance of the top 100 stocks with the most buybacks has added 13 percent in the past year, compared with an 8.3 percent gain in the benchmark index."
Meanwhile, revenues are not so rosy. In my view, this is a symptom of QE and a reflection of central bank 'tooth fairy economics'...a temporary triumph of financial chicanery over common sense and honest capitalism.