A Goldman Sachs report on stock buybacks shows a suspicious clustering in the fourth quarter, just when management bonuses are being calculated.
These expensive gambits weaken the health of companies by gutting their cash reserves to jack up the share-price, which is one way of thinking about "building shareholder value" (if the shareholders you're thinking about are giant hedge-funds who don't care about the health of the business and just want to asset-strip them, sell their shares, and move on to the next business).
The "job creators" who benefit from this move are long gone by the time the business starts to teeter, and the management teams that run the buy-backs get huge bonuses for "creating shareholder value." The actual working stiffs at the company -- and the suppliers and customers that support it -- are left holding the bag.
Notice how the bulk of buybacks are concentrated in the fourth quarter, with the obvious intent of goosing prices at year end so as to lead to higher executive pay for “increasing shareholder value”? In fact, these companies are being gradually liquidated. Issuing debt, which public companies have done in copious volumes since the crash, and using it to buy shares is dissipating corporate assets. They are over time shrinking their businesses. That is also reflected in aggressive headcount cuts and cost-saving measures. Even though analysts like to tout the cash that companies have sitting on their balance sheets as a source of potential investment, as we’ve discussed in previous posts, public companies are so terrified of even a quarterly blip in earnings due to incurring expenses relating to long-term investments that they’d rather do nothing, or go the inertial path of cutting costs to show higher profits.
(Image: Ouroboros, Zanaq, CC-BY-SA)