Corporate share buybacks support stock prices, and the value of executive stock options, often with borrowed money, and its all legal! This shell game may be coming to an end. From Wolf Richter at wolfstreet.com:
“The leveraged share buyback game has ended, which also means an end to the phony earnings growth.”
HSBC and Goldman Sachs have now both come out with estimates about the extent of the collapse of share buybacks. So far into this crash, over 50 companies have suspended share buybacks, accounting for $190 billion in cash that is not flowing into the stock market, representing over a quarter of total share buybacks in 2019.
HSBC estimates that over the next two quarters, share buybacks in the US could be cut by $300 billion, meaning $300 billion in “lost inflows” into the stock market.
And more cuts are coming. A note by Goldman Sachs analysts, reported by Bloomberg, added: “Reduced cash flows and select restrictions mandated as part of the Phase 3 fiscal legislation suggest more suspensions are likely.”
And slashing share buybacks would have an impact on stocks, the Goldman analysts said: “Higher volatility and lower equity valuations are among the likely consequences of reduced buybacks.”
