agip wrote:
2) You seem to be implying that most if not all buybacks are done with borrowed money. You'll have to prove this to me - I believe much is done with the very very abundant cash on balance sheets.
3) If a company has a ton of cash - and I believe cash is at a record level - buying back your own shares is a fine strategy. I suppose building a new factory would be better, but that's not an option for many companies. Does GM need another factory?
2) I find it interesting when people like agip or the talking heads on cnbc continuously point out the record cash on balance sheets, but fail to acknowlege the record debt on balance sheets.
3) Again, cash is at a record level, but so is debt.
Additionally, just think through as a potential future shareholder of a company. They are essentially sacrificing future cash flow to juice the stock price today. That makes owning the company in the future less attractive than it would otherwise be.
First, buying back shares helps pump up the current stock price via increased demand for, and reduced supply of shares.
Second, debt incurred now (to buy back shares) will need to be repaid in the future. That will consume future cash flow, which would otherwise be available to shareholders. That means $7 Billion borrowed today to buy back stock will be $7 Billion less available to shareholders for future dividends, buybacks, or to invest in the business to make the company & shares more valuable.
Essentially, you're stealing cash from future shareholders to increase rewards to current shareholders. And, in the process, you're making the stock more expensive. Both make the future prospects for the stock & shareholders less attractive.