The Effect of Share Buy Backs



As the major banks report earnings we wish to re-emphasize a point we have made in the past. A significant portion of past EPS growth of public companies in the S&P500 has been driven by buying back shares using cheap low interest rate money from the Federal Reserve as well as debt. The recent earnings reports from major banks re-emphasizes this point as they are ground zero of this occurring. Why this is so important to understand is that earnings in 2019 for the most part DECLINED and would have been much worse if not for the buybacks. This buyback is expected to continue in 2020, but if it wanes tied to slower economic activity straining company cash flow earnings will be negatively impacted EVEN MORE. Many large cap technology companies are creating the same accounting magic via share buybacks artificially boosting report earning PER SHARE (if shares fall the Earnings / Shares number goes UP). It something to consider the very least when investing.





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