Buybacks decrease the number of shares in circulation, so if earnings remain constant, earnings per share rise. This in turn means that more people want them, their price soars and executives get their bonuses.
So much for economic theory; what do the analysts make of it? "This isn't a bad thing," says one. "It shows that the company is aware of its own value and wants to do something about it. Investors will be happy to make some money on their holdings at this time."
Other companies are expected to follow as shares fall further.
Meanwhile, the chairman of one housebuilder, contemplating the possible collapse of his market, demonstrated the technique of arguing yourself into a good mood. "Uncertainty is the one thing a company doesn't like," he said. "At least if we know it's bad we can prepare for it. What we have to do
now is expect the worst. Then if it is bad we're ready, but if it's not, we're in a better position anyway …"