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Herb Greenberg's avatar

Let's get the comments rolling with this one from a friend, who never posts anywhere but who is never shy with an opinion:

Who knows what the market will do but not sure he is right about this. When interest rates were 0%, you borrow to fund buybacks, because it is accretive. Apple prime example.

Now if you have to borrow at 5%-7%, and your PE is 20 or more, the buyback is not accretive to EPS. That would be dilutive.

So obviously, there is still borrowing going on, but that is probably to fund operations as opposed to fund buybacks.

Obviously there are still buybacks going on too, but they are being funded by the cash already borrowed previously (but not used up yet), or by cash from operations.

Anyway, my point is I wouldn’t draw too much linkage now between the debt markets and buybacks.

Then the other thing is you have to look at buybacks not just in gross $, but as a % of total market cap out there. Market cap and multiple on some of these companies is so high now, they are no longer reducing share count with their buybacks.

Then as you point out, they are announced, but always hard to know the rate at which they will happen.

My 2 cents, market could go up, could go down, but I do not think buybacks funded by the current debt market will be part of why.

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Paul Schaefer's avatar

Thanks for the research and concise presentation. As a novice in the bond market world, I wonder where can one obtain data on investment and high yield credit spreads?

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