In a move that is almost as shocking as Keith Richards writing an essay attempting to show that rum is good for you if you drink it by the gallon, Goldman Sachs is looking to correct some misconceptions it's seeing out there regarding corporate buybacks.
U.S. companies have “consistently” returned cash to shareholders for almost 140 years, so it’s far from a new development, strategists led by David Kostin wrote in a note Thursday. And buybacks don’t dominate corporate spending, they said -- growth investment has been the largest share of U.S. companies’ spending every year since at least 1990.
“One of the greatest misconceptions in the public discourse surrounding corporate buybacks is the belief that managements repurchase stock in an attempt to inflate earnings per share and meet incentive compensation targets,” Goldman wrote. “Executives whose compensation depends on EPS,” they said, “did not allocate a higher proportion of 2018 total cash spending to buybacks than companies where management pay is not linked to EPS.”
See? There's no direct data showing a connection between C-Suite greed and using tax cuts to inflate your own stock price. So fucking RELAX pinkos.
In fact, if you're smart, buybacks are good:
Growth investment “has accelerated sharply” since the tax reforms passed, contradicting “the widespread belief” that the changed policies led only to a surge in share repurchases, Goldman said. Companies have boosted buybacks relative to dividends to repatriate overseas profits and because of greater flexibility to match earnings volatility, the strategists added.
Read up, Bernie Bros, because according to the paradigm of American capitalism, you're tilting at the wrong windmill. And surely this will solve the issue, after all the entire debate over corporate buybacks is a fact-based one and not at all a symptom of our larger societal schism between a far-right embracing a completely unregulated private sector and a far-left that is openly experimenting with a new strain of American proto-socialism. Maybe Goldman is talking to the handful of people left in between who are even vaguely interested in the nuances of things like how buybacks have multiple effects on the US economy at once.
“Corporates are generally efficient allocators of capital,” Goldman wrote. “We find some evidence that the companies that are able to generate the highest returns on assets are also those that invest the most in growth capex and R&D,” while “firms that generate lower asset returns may find the economics of cash return to shareholders to be superior to investing for growth.”
Shhhh, Goldman, you're not helping.