Further to my article yesterday on the capital malinvestment in record corporate buybacks at cycle high valuations in equity markets, the Globe and Mail reports that corporate buybacks of TSX-listed companies also reached an all-time high of nearly $50 billion in the 12 months ending March 31, 2019, and nearly 50% higher than the previous mania peak in 2007. Below is the chart of TSX-listed buybacks since 2001, see Buybacks soar on TSX, but there’s a downside:
Banks and energy companies have been leading the charge as both face slowing profit growth and markets over-supplied with their product. At the end of a record-long economic expansion, the prudent thing to do would be to shore up cash and capital ratios for the downturn now due.
Unfortunately, the c-suite remains fixated on temporarily levitating share prices rather than shoring up fiscal strength and diversifying business models. Past cycles confirm that debt-heavy businesses will increasingly need to slash expenses and divert shrinking cash flows toward debt repayment. This will leave fewer funds for everything else, including buybacks.
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