Must read article at the evil site. An in depth Q&A with the man who runs Goldman's buyback desk.
https://www.zerohedge.com/news/2019-04- ... all-street
To me the three big takeaways were:
1. During earnings blackout buybacks drop by around 30%. So Gandalf was wrong in his recent piece. What happens is if you have set in place a safe harbor plan (safe from SEC) specifying how, how much and when before you know what prices are you can keep buying while running blind.
2. Purchases are generally no more than 10% of the average daily float. I would like to see a study showing the percentage difference in terms of the daily float so I can put that number in context, but on the surface it certainly explains how some companies can go up and up and up.
3. They do buy more than usual when prices are unusually low.
Over at Real Investment Advice Lance Roberts is predicting that the government will once again outlaw buybacks. He thinks that as usual it won't be until after a major market meltdown leaves a large part of the economy in "smoking ruins" and the public becomes outraged. He cites a fun number by the way, that in 1980 the typical CEO made 50 times what the typical production line worker was making. Then buybacks got going. Now it is around 144 times as much and most of the change is in the form of stock.
I am aware that when it comes to buybacks I am starting to sound like a speaker at a temperance rally. But they account for most of the gains in the market. They have pretty much eliminated the ability of the market to set prices on a day to day basis. Many companies have loaded up on debt so that the executives could be paid over 100% of the free cash flow. Human emotions do not change. Executive greed as well as the herd instinct and recency bias (everyone is doing it and we have been doing this for several years) have all contributed to this widespread bad idea. It will become clear if the Fed falters and we enter a recession. Then the greatly heightened per share numbers from all those buybacks (financial engineering) will hype the down side volatility.