One Chart Tells You Everything You Need To Know About Buybacks

So everybody knows that buybacks are a big part of equity demand in the US, right?

Well, if you don’t know that or otherwise don’t fully appreciate how important the corporate bid has been, look no further than the following table:

As Mohamed El-Erian noted earlier this week, you can “forget economic and policy fundamentals,” because “liquidity injections” are all that matter these days. And one source of that liquidity is “record corporate profit levels, which translated into continued stock buybacks and higher dividend payments by companies.”

Of course what’s super fun about this is that it’s a giant circle jerk. That is, central banks drive down rates sending investors on a never-ending hunt for yield, low rates plus insatiable investor demand creates a Goldilocks environment for corporate debt issuance, and the proceeds from that debt can be funneled into EPS-inflating buybacks.

If that sounds like financial engineering to you, that’s because it is. And if you want to know why corporate management teams would leverage the balance sheet myopically and mindlessly, we have just one more visual for you via Goldman…

Any questions?