DO WE, U.S. CORPORATE CEOS, INVEST IN R&D, CAPITAL EQUIPMENT, TRAINING—AND OTHERWISE PREPARE THE COMPANY FOR THE FUTURE
Which is what we are hired to do (but we would so like to be rich—ridiculously rich)
OR DO WE BUYBACK OUR OWN SHARES, ARTIFICIALLY PUMP UP THE SHARE-PRICE, MAKE OUTSELVES RICH—AND LET TOMORROW TAKE CARE OF ITSELF BECAUSE We’ll be gone by then…
The heading in the graph below?
STOCK BUYBACKS SET RECORD FOR 1ST HALF (2015)
Well, of course they do!
What a damn silly question!
And now TIME magazine is showing concern (not before time). Bluntly, it is is absolutely clear that share buy-backs—which have grossly undermined productive investment, and vastly increased corporate debt to scant productive end, are being shown to be a disaster.
You can’t underinvest at this scale without dire consequences. Overall, American industry is losing ground to international competitors who do invest—and reap the productivity benefits.
As always, the financially stressed American worker, backed by insufficient investment—and, all too often inadequately trained (let alone, educated), loses out. This is the self-same worker who is less well off in 2014 than in 1973.
Quite why the significance of that truly frightening economic statement hasn’t caused more alarm defeats me—because costs haven’t remain stable. Healthcare, housing, third-level education, and automobile prices have increased way ahead of inflation. The defined pension has been largely done away with. The social safety net is demonstrably entirely inadequate.
The average American has had his or her economic situation attacked in numerous ways since the ultra-rich took the initiative back in 1973. Two actions have been particularly destructive.
First, U.S. manufacturing was gutted through mammoth outsourcing—and then came years of under-investment (except in share buybacks).
The negative consequences are already showing up—so what does the future hold?
Continued economic decline in real terms.
Posted: 27 Sep 2015 09:01 PM PDT
For some time now, I’ve been writing about the trouble that might be brewing in the corporate debt market. Share prices have also been driven up by low interest rates that have allowed companies to borrow money on the cheap and use it for short-term gain. Corporate debt (not including debt held by banks) has risen from $5.7 trillion in 2006 to $7.4 trillion today. Much of that money has been used for stock buybacks, dividend increases and mergers and acquisitions.
The Office of Financial Research, a group set up within the Treasury Department after 2008 to conduct forensic investigations into the causes of financial crises, as well as risks that might be brewing in the markets, has already named corporate debt as one of its biggest concerns. Indeed, a OFR researcher I spoke with recently said that high yield bonds in particular were a cause for growing consternation—especially given the fact that big cash-rich tech companies were underwriting a lot of these corporate debt offerings, increasing the risk of a domino effect were the corporate bond markets to plummet as interest rates rise.