C-suite Lemmings Heading For The Cliff – -Still Pursuing Massive Share Buybacks

In the midst of a gloomy earnings season, the share buyback machine has remained in overdrive, and some experts are cautioning it will all end badly.
Companies, even those that are missing profit and sales estimates and cutting outlooks, or restructuring and cutting jobs, are still announcing buybacks. Coming after a long period of intensive spending on shareholder returns, the news is bad for investors hoping to see a return to growth.
‘We continue to be skeptical about how companies are deploying capital, especially when it’s tied to stock-based compensation,’ said Ben Silverman, vice president of research at InsiderScore, a research firm that tracks buybacks and legal insider trading for institutional clients. ‘We believe buybacks can be used to mask management’s inability to grow the business and be innovative thinkers.’
William Lazonick, professor of economics at University of Massachusetts Lowell and director of the Center for Industrial Competitiveness., went a step further, suggesting that buybacks have the potential to push the U. S. into recession. He argues that companies are using them to prop up share prices at the expense of reinvesting in the business and supporting job stability and long-term growth.

This post was published at David Stockmans Contra Corner on February 5, 2016.