We ask a simple question. If stocks are so 'cheap,' where are the buybacks? We continue to believe that earnings estimates were too high to begin with and need to come down to more realistic levels. Each subsequent earnings season will obviously help bring people back down to earth. The chart below, courtesy of Bloomberg, illustrates just how few buybacks there have actually been.
Clearly a reversion to the mean under way. It's funny to note that the most buybacks occurred when everything was "all fine and dandy" on Wall Street. Either management was too high on life (or drugs) to realize they were buying back at astronomical valuations, or they are simply the worst investors ever.
"It's cool man, everyone's doing it... buy back your stock man!!"
Yet, here we are, approaching new levels of cheap each day. And where is management?
They're passed out from their binge and purge. It's cool though, they'll be back once things are rip-roaring again, buying at more expensive levels when they could have been buying back debt or stock on the cheap. Howard Lindzon shares our frustration, he's been preaching about this issue for months. But then again, maybe management teams of various companies are bearish like us and think they can get their stock even cheaper. Hard to give them the benefit of the doubt there, given their past investing performance.
We don't mean to just lump every single management team into a category like that. Because, after all, we do realize that each company faces specific challenges and levels of cash/debt. But, when hardly anyone steps up, it makes you wonder. If the management of the company itself does not have confidence to buy their own stock, why should we?