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Old 11th June 2018, 11:43 AM   #1
Bob001
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Another bubble heading for a bust.

The writer argues that corporate borrowing and share buybacks are boosting stock prices, but reducing investment in new plants, products, research etc., with severe long-term consequences.
Quote:
Today’s economic boom is driven not by any great burst of innovation or growth in productivity. Rather, it is driven by another round of financial engineering that converts equity into debt. It sacrifices future growth for present consumption. And it redistributes even more of the nation’s wealth to corporate executives, wealthy investors and Wall Street financiers.

Corporate executives and directors are apparently bereft of ideas and the confidence to make long-term investments. Rather than using record profits, and record amounts of borrowed money, to invest in new plants and equipment, develop new products, improve service, lower prices or raise the wages and skills of their employees, they are “returning” that money to shareholders. Corporate America, in effect, has transformed itself into one giant leveraged buyout.
https://www.washingtonpost.com/busin...tml?noredirect
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Old 11th June 2018, 12:13 PM   #2
Hlafordlaes
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Worse, former future STEM workers are now doing hi-freq trading.

Some nice, depressing charts on wiki. Not a fantasy to say China is already eating US lunch, every day. And who runs America? The anti-science crowd. Hope they choke on a Bible and fall onto the top of a cross from height for some hoisting on own petard.
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Old 11th June 2018, 01:09 PM   #3
Francesca R
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The chart of capex/revenue looks like a flat line, not that firms are actually slowing down investment. But anyway it's probably better that they decide an appropriate retention rate rather than anyone decide it for them. And better that they don't invest than they invest in stupid projects.

Buybacks are a way of distributing cash to equity owners. I'm sure I remember stories in the recent past about companies "hoarding cash". IMO it's better to pay it out. Who wants to buy a stock that is largely cash? And would the article make anything like such a fuss if it was dividends instead of buybacks? They are equivalent.

If firms are increasing their leverage (debt/assets), that may be good or it may be bad. No idea. But one would think they are aware that interest rates are rising since more than two years ago.
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Old 12th June 2018, 01:16 AM   #4
Roger Ramjets
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Originally Posted by Bob001 View Post
The writer argues that corporate borrowing and share buybacks are boosting stock prices, but reducing investment in new plants, products, research etc., with severe long-term consequences.

"Corporate executives and directors are apparently bereft of ideas and the confidence to make long-term investments."
Who would want to commit to long-term investments in today's environment? The instant you made a decision Trump could change his mind and your business plan goes south.

The corporate world may be trying to ignore the current regime's shenanigans, but the fact is that government does have a vital role to play in providing a positive business environment. Whether it's using military force to protect markets and maintain global stability, forging trade agreements, leveling the playing field with sensible regulations, or just providing for the general welfare of the country, what the government does can make an enormous difference.

Unfortunately (but predictably) the Trump administration is doing spectacularly badly on all fronts - so it's no wonder that corporations are simply cashing in their tax cuts and getting ready to bail out. And who can blame them? It's not like they have a responsibility to anyone but their investors.

Originally Posted by Hlafordlaes
And who runs America? The anti-science crowd. Hope they choke on a Bible and fall onto the top of a cross from height for some hoisting on own petard.
Anti-science, anti-regulation, anti-government (except when they want to discriminate against someone), and pro capitalism as the 'invisible hand' that will magically make everything run smoothly.

There's only one way these people will learn - we have to let them have their way until there is nobody else they can blame for their predicament. This may destroy America, but at least then they will have to listen when we say "we told you so". And if China 'eats our lunch' who cares? Perhaps we should take a cue from the corporates, and start making our own plans to bail out...
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