Las Vegas Sands has been repurchasing stock back to its shareholders for the past four years. The numbers speak for themselves: an overall of $7.1 billion spent on repurchasing programs.
There is also another repurchase program planned for 2015 which will cost another $2 billion. It is not a surprise that Sheldon Adelson, the owner of Sands, is constantly using the word “repurchase”.
The company is estimated to have spent more than 94% of its income for the past four years for buybacks.
Some say these actions are a gesture of generosity towards the company’s shareholders. Others, however, claim this is simply madness. It may be. However, looking at what most of the other S&P (Standard & Poor’s) companies do, it appears they follow a very similar proportion.
The overall buybacks for all S&P companies is close to $1 trillion.
The reason why all those companies spend such tremendous amounts of money on buybacks is that the current global economy is in a state never seen before. A state of loosen monetary regulations. For example, in the European Union, the Zero Interest Rate Policy is now slowly overtaken by a Negative Interest Rate Policy. Federal and central banks around the world follow the US and EU and devalue their currency in order to keep the exchange rates in a stable condition.
Wouldn’t that lead to a major inflation around the world? Here comes the role of all these buybacks, $1 trillion of them. When in the possession of investors, the liquidity of these buybacks circulates mainly among investors and major businesses and does not reach the consumers. Therefore a huge amount of the money, which should and would have caused inflation, is kept away from the individuals.
Finally, that leads to the conclusion that inflation does happen as it is kept mainly in the boundaries of the capital sector.
This containment of finances within the boundaries of the stock market will not continue forever. At some point, the above-mentioned S&P companies will stop giving 95% of their revenue to their shareholders and will keep a bigger sum to reinvest in their facilities and operations. That on its turn is expected to decrease the value of shares as the money will be slowly taken from shareholders and focused on covering each company’s expenses.
There is no doubt that Sheldon’s strategy works for him. That, however, may not be the case in the long run, when a business cycle completes its revolution. Sheldon commented on that, showing deep understanding of how the global and local economies work and affect each other: “we have experienced cyclicality in Macao in the past, and we believe that the current softness in the environment in Macao today is also cyclical. And that is only a matter of time before the cycle reverses itself.“
Sheldon has lived through the Great Depression and knows that any macro economic situation goes in a circle and changes on its back sooner or later. However, the factors which make it change may not be so unpredictable.
Recent history and specifically the 2008 Global economic crisis showed that federal bank money altering may play a major role in how an economy behaves. The current economic situation does not have an equivalent from the past. The $1 trillion buybacks is just a small part of the overall liquidity of the US economy and only time will tell if Adelson and other major businesses can handle what is to come.
