patrick.net

landtof says

aren't these symptomatic of deflation i.e. where businesses cannot obtain the investment necessary to produce more goods for fear of weak demand and therefore falling prices?

Yep and the Fed is trying to combat it with liquidity but the companies are not putting the money to use, they are buying back their own shares, boosting stock market prices

indigenous says

So they are not really helping themselves rather just another flavor of malinvestment.

yes a malinvestment however that pays off -at least for a time-one that can be recouped. In the longer term however the companies are no better off, and indeed are worse because the capital was not invested in the company but rather in the stock price

John Bailo says

Yes, they will drive up the price long enough for the insiders to sell out, and then the average person will find out soon enough his 401k money was invested into a rotted hulk.

right they are "maximizing shareholder value" when really what they are doing is lining their pockets by getting bonuses based on stock price increases and making their stock options more valuable instead of investing in their companies growth.
But given the QE economy, what else should they do?

smaulgld says

yes a malinvestment however that pays off -at least for a time-one that can be recouped. In the longer term however the companies are no better off, and indeed are worse because the capital was not invested in the company but rather in the stock price

Not really, watch this video where Mish comments at 25:36

https://www.youtube.com/watch?v=1mVM3_8nYq0#t=1536

Call it Crazy says

How many glasses of wine

Don't know, but I think it is the same brand some others we know drink.

indigenous says

Not really, watch this video where Mish comments at 25:36

https://www.youtube.com/watch?v=1mVM3_8nYq0#t=1536

He is saying they should build reserves of cash to avoid a credit crunch in the future.

I agree that when they spend cash on their own shares they are setting themselves up for a bigger fall and they wont have a cash cushion when a collapse happens, but my original point stands that in the short term they get the boost in stock price, collect their winnings even though they have not improved the company one bit.

APOCALYPSEFUCKisShostikovitch says

Why do you hate Freedom?

The execs will walk away with billions, buy wives by the 100s and ingest more cocaine in a day than you will in a lifetime and, through blood transfusions from sacrificed infants from developing nations, live to be 300 years old.

This is the promise of America!

Sorry I got carried away...

smaulgld says

get the boost in stock price, collect their winnings

That is a BIG assumption. On that same subject the grey haired guy was saying that companies are using this money as a line of credit.

Anyway doing what you suggest will not be on anyone's list of best practices.

indigenous says

That is a BIG assumption. On that same subject the grey haired guy was saying that companies are using this money as a line of credit.

Anyway doing what you suggest will not be on anyone's list of best practices.

It's not an assumption, it is happening and I am not suggesting it, I am criticizing it! But it is happening. Do a little trolling of insider sales on sec.gov and you 'll see how widespread the practice is.

Call it Crazy says

Strategist says

Low interest rates spurs economic growth. People find it easier to buy houses, cars, take vacations and go out to dinner. Businesses in order to meet the added demand, build more homes, more cars, more jets, and more restaurants. They end up hiring, and investing.

The result.....lower unemployment, more home building and more cars being built. And Voila, that is exactly what has been happening in the last 2 years.

Wow... How many glasses of wine did you have before you wrote that post??

None. I only drink at dinner time.
Is your pool done? I'm gonna tell your grand kids to mess it up, just so you would have to clean it up.

smaulgld says

It's not an assumption, it is happening and I am not suggesting it, I am criticizing it! But it is happening.

By virtue of the comment the gal in the video makes that balance sheets are being compromised implies otherwise.

indigenous says

By virtue of the comment the gal in the video makes that balance sheets are being compromised implies otherwise.

What are you talking about?

smaulgld says

What are you talking about?

In the video the gal is saying that the balance sheet of the companies will be adversely effected by buy backs. This implies that the companies are not selling the stock, as it would lower their liabilities and raise their equity if they were selling the stock as you state.

indigenous says

In the video the gal is saying that the balance sheet of the companies will be adversely effected by buy backs. This implies that the companies are not selling the stock, as it would lower their liabilities and raise their equity if they were selling the stock as you state.

You misunderstood me, I meant the executives, not the company itself are selling the stock.
My point is the companies are buying back their own shares in large amounts instead of investing in their companies. The share prices rise and the executives sell. That is happening.
So for them the malinvestment pays.

smaulgld says

So for them the malinvestment pays.

Ok, how many are doing this? Do these executives have previous "public service" experience?

indigenous says

smaulgld says

So for them the malinvestment pays.

Ok, how many are doing this? Do these executives have previous "public service" experience?

There are so many examples of conflicts of interest in companies and the executives that run them.

If the executives focus on boosting the share price in a legal way (like buying back shares) it's hard to say there is a conflict as boosting share value is consistent with a company's goals, even though such a practice may be detrimental long term

So they are no different than government workers, except that the business will go BK, with the obvious exceptions. Have to wonder about the board of directors in such a company.

indigenous says

So they are no different than government workers, except that the business will go BK, with the obvious exceptions. Have to wonder about the board of directors in such a company.

no difference , if men were angels...

Board members have shares and options too- "everyone has a share" and everyone wins!

smaulgld says

no difference , if men were angels...

Board members have shares and options too- "everyone has a share" and everyone wins!

The only transgression would be in bailing them out.

indigenous says

The only transgression would be in bailing them out.

Yep, private companies are free to loot subject to shareholder approval and law suits, if they fail there is no bail out, just perhaps a class action law suit

Strategist says

Low interest rates spurs economic growth.

Yeah, fuck all those interest dependent seniors and savers.
Let 'em get on board some risk trade or die already.

Robert Sproul says

Yeah, fuck all those interest dependent seniors and savers.

Let 'em get on board some risk trade or die already.

It forces them into the stock market with the hope that they can cash out before the execs do

China to Launch QE- Daily Telegraph http://www.telegraph.co.uk/finance/china-business/10868381/China-explores-bond-buying-in-first-hint-of-QE.html

Strategist says

Low interest rates spurs economic growth.

Artificially Low interest rates-those set by the Fed have their own set of issues: http://smaulgld.com/the-dark-side-of-artificially-low-interest-rates/

Robert Sproul says

Strategist says

Low interest rates spurs economic growth.

Yeah, fuck all those interest dependent seniors and savers.

Let 'em get on board some risk trade or die already.

If interest rates take a huge jump someone will be telling me...yeah, fuck all those first time home buyers who can no longer afford to buy homes and cars.
There are 320 million Americans, you can never make them all happy at the same time. Never.

Strategist says

If interest rates take a huge jump someone will be telling m

Higher interest rates would be a short term negative, but long term positive as capital would get reallocated more evenly and more productively throughout the economy

smaulgld says

Strategist says

If interest rates take a huge jump someone will be telling m

Higher interest rates would be a short term negative, but long term positive as capital would get reallocated more evenly and more productively throughout the economy

Because interest rates are artificially low, yes, I would agree.

Strategist says

Because interest rates are artificially low, yes, I would agree.

but that is the selling point of QE- to set the fed funds rate low and to buy mortgage backed securities and US Treasury bonds to maintain low interest rates.

Do you favor that policy?

smaulgld says

Strategist says

Low interest rates spurs economic growth.

They don't build productive capacity -witness what companies are doing with cash- instead of investing it to meet demand (that hasn't materialized) they are buying back their own shares as their best use of capital.

It's true many public companies have been beefing up their balance sheets as a result of the market run up. I have not seen a significant increase in R&D budget and hiring as a result. In theory the lower rates should stimulate, not sure how well it is working.

Analyzer says

have not seen a significant increase in R&D budget and hiring as a result. In theory the lower rates should stimulate, not sure how well it is working.

That's the point -since the economy cant support growth, there is no reason to invest cash in hiring and R&D especially if boosting your stock price is a slam dunk way of increasing the share price.

smaulgld says

Analyzer says

have not seen a significant increase in R&D budget and hiring as a result. In theory the lower rates should stimulate, not sure how well it is working.

That's the point -since the economy cant support growth, there is no reason to invest cash in hiring and R&D especially if boosting your stock price is a slam dunk way of increasing the share price.

Yes, it is an easy way of making your company appear to be doing well. My company is very selective in how they are spending cash and hiring, and are being quite conservative.

Analyzer says

Yes, it is an easy way of making your company appear to be doing well. My company is very selective in how they are spending cash and hiring, and are being quite conservative.

A free gift from the Fed that according to Fed theory will boost stock prices and in turn boost hiring- it hasnt

smaulgld says

it hasnt

Because there is no wealth effect, why do people hate the government taking care of them?

smaulgld says

Strategist says

Because interest rates are artificially low, yes, I would agree.

but that is the selling point of QE- to set the fed funds rate low and to buy mortgage backed securities and US Treasury bonds to maintain low interest rates.

Do you favor that policy?

Until we hit escape velocity, yes.
I'd go along with the Fed on this.

Strategist says

Until we hit escape velocity, yes.

I'd go along with the Fed on this.

It's been five years and not only have we not hit "escape velocity" but the economy is slowing. How long will you support it, How long till you admit it doesn't/didn't work?

smaulgld says

Strategist says

Until we hit escape velocity, yes.

I'd go along with the Fed on this.

It's been five years and not only have we not hit "escape velocity" but the economy is slowing. How long will you support it, How long till you admit it doesn't/didn't work?

It is working, slowly. I'll admit....too slowly.
We don't have much of a choice, but to go on.

Strategist says

It is working, slowly. I'll admit....too slowly.

We don't have much of a choice, but to go on.

We never had the choice of printing trillions, why do you think we have to carry on?

smaulgld says

How long till you admit it doesn't/didn't work?

Some one was saying that is why Bernanke retired as he doesn't want to be the whipping boy for his handiwork. He will be happy with re inflating RE.

indigenous says

Some one was saying that is why Bernanke retired as he doesn't want to be the whipping boy for his handiwork. He will be happy with re inflating RE.

No one expected it to be a $4 trillion five year program of printing money . Here is Bernanke in 2009:
https://www.youtube.com/watch?v=odPfHY4ekHA&t=8m21s

smaulgld says

Strategist says

It is working, slowly. I'll admit....too slowly.

We don't have much of a choice, but to go on.

We never had the choice of printing trillions, why do you think we have to carry on?

If we stop prematurely we go into a depression.
We are not fools like Spain.