Hi Greg, Thanks for the reply. You are partly right. I think organizations are struggling for real growth, they are leaner than for a long time, have not invested in assets as intensively as the past and sit on a lot of cash. As interest is low to non-existent where do you put the money- in buybacks and your stock. It keeps it on a high, it takes out surplus stock, some feel were diluting the share price ‘reasonable’ value. No argument that R&D stays constant or even gone up, depending on industry but it is not really the environment ‘chasing for growth’, it is one where companies feel are still too uncertain, a little volatile and risky. Yet risk goes hand in hand with innovation and growing markets, getting into new sectors but the safe to do action is to distribute that spare cash back into buying your stock. It raises the question on how do you judge innovation, and the type of approach you make towards it.
If the bull market does finally run out of steam, stocks will be driven by more than cash alone, they will be driven by company prospects and that comes from making the right investments, in innovating what you have and what you see as risks worth taking to keep attracting investment. M&A’s will come back, as all the cash can help in this area but the premium of return from many of these M & A’s has been questionable.
Each way there is a need for greater, bolder innovation. Most are ticking over waiting for the ‘fundamentals’ to change and put your spare cash in where you feel it is the safest, back in your hands and not in the banks. Things will change. As for the tax advantage then this becomes a political one to handle equally.
We need greater growth worldwide, more jobs that are above minimum conditions, we need different wealth generating concepts. Buybacks give shorter-term gain at present and certainly valuable addition to managements own share holding. We become more short-term in these actions and that has a finite time before it needs changing to get all aspects of the economy firing, not just selected parts.
It is interesting that the majority of the buybacks have been related to two industry sectors- pharmaceuticals were they need to hind behind there lack of pipeline and technology related with Apple, Cisco, Intel, Microsft all pushing prices up with substantial buybacks as the cash is piling in. Maybe this distorts or is enhancing, and the real dynamics of technology might be less appealing and other options might come back into fashion, again it can create a distorted economy.
Buybacks are made for many reasons but they are not the friend of investment in assets or people that can build ‘greater’ innovation and thats the point.