Corporate health in charts
The best articles for the state of the economy always come out on Friday afternoons.
Today is no different.
“Asset valuations are extreme; returns are poor, the probability of losses is high and the ability to recover any losses quickly is low,” he writes.
In particular, the strategist sounded an alarm over the state of corporate America’s balance sheet. Company spending exceeds cash flow by a near-record amount—a fundamentally unsustainable situation—as net debt continues to increase at a rapid pace.
In many cases, companies have used debt to repurchase their own stock, flattering their bottom-line financial performance. While not all buybacks are financed by debt, Lapthorne did note a correlation between net repurchases and the change in corporate indebtedness.
“U.S. corporate balance sheets are a major risk going forward,” he says. “U.S. corporates are massively overspending.”
But over the long haul, the performance of stock markets will be primarily driven by earnings increases—and the level of corporate indebtedness implies that any latitude to boost earnings per share by shrinking the denominator is limited.
Corporate profits in the U.S., meanwhile, have declined for five consecutive quarters. As Bloomberg’s Matthew Boesler reminds us, the combination of near-record corporate debt-to-GDP, record low return on equity, ever-higher labor costs, and subdued pricing power doesn’t paint an inspiring picture for growth.
Comments
QE umpteen?
How about we just print some more money? It blows my mind the value of the dollar has held up when we're printing 'em like they are going out of style.
Thanks for the info!
“Until justice rolls down like water and righteousness like a mighty stream.”
This is an example, in my view, of the secular stagnation
predicted by radical economists. They predicted the financialization of global monopoly capital when productive investment opportunities disappeared;and, the increased debt and the relative increase in the amounts spent for stock buybacks and dividends was anticipated. In the past, heavy government spending helped corporations "right" themselves but we already have heavy government spending and there is little left.
If governments spent money to fund productive infrastructure like roads, waste water management, power grid, renewable energy then it would be productive. Obama's administration would rather spend money for - say - a tank. A tank not only just sits there and produces nothing, it has negative value in that it requires public employees - soldiers - to staff it, guard it, transport it, and supervise it.
It's worth repeating that stock buybacks were illegal in the USA until a few decades ago because stock buybacks were seen as a manipulation of the market where that stock was listed. It's still true but since influential corporations didn't like the law and wanted to manipulate the market it suddenly became legal. The same for the trashing of the usury laws which limited the degree of gouging banks were allowed to inflict.
Hide your money in a safe place because "when she blows" this time, the global fascists will grab what you have in an even more brazen manner than they did under W Bush and B Obama, I think.
"The justness of individual land right is not justifiable to those to whom the land by right of first claim collectively belonged"
Without Faith And Trust, Don't Bother
The only reason the US dollar retains any value is that those who accept them as payment recognize that it can be converted into a tangible object of worth. If for some reason that transactionality evaporates (think Weimar Republic), about all a dollar would be good for -and only if you are very careful- is to wipe your dorsal port after defecation.
It goes for gold as well. Why would you accept a token that you can't eat, or can't use as a tool, or can't use as fuel, in trade for something you can? That would be more valuable than a hunk of refined metal which can't be used as anything but a token of value in a functioning medium of exchange.
Vowing To Oppose Everything Trump Attempts.
OK! OK! You've convinced me. Buy Spam... : )
Will "Faith and Trust" go the way of "Hope and Change?"
"The justness of individual land right is not justifiable to those to whom the land by right of first claim collectively belonged"
This is what always seems to happen
"[Radical economists] predicted the financialization of global monopoly capital when productive investment opportunities disappeared"
When the dollar can't get 7% at home, it goes searching for investment abroad. And that brings Empire in its wake, for the dollar's investment abroad must be protected: behind the TPP, TPIP, etc is invariably the tank. Or as Thomas Friedman (a stupid prick) rather too gleefully put it, "The hidden hand of the market will never work without a hidden fist -- McDonald's cannot flourish without McDonnell Douglas, the builder of the F-15."
J.A. Hobson was all over this in the 1890s and the early years of the 20th century. The concentration of wealth at the top, he explained, results in "surplus capital", which can't be reinvested at home because the workers are too poor to participate as consumers in their own economy. So the capital goes abroad, and "law" (i.e. marketization with rules favorable to capital at expense of people, environment) and the military necessarily follow. But Empire is not a true solution - only a metastasizing of the real problem: mal-distribution of wealth:
"The struggle for markets [abroad], the greater eagerness of producers to sell than of consumers to buy, is the crowning proof of a false economy of distribution. Imperialism is the fruit of this false economy..."
The remedy was [progressive] “social reform” - and voila, the economic logic of social democracy was born. After this understanding was made orthodoxy with Keynes and Eccles in the 1930s, consumer capitalism came to the system's rescue (though Empire was retained, as a fait accompli).
Now as we face another imperial crisis, it looks like consumer capitalism has run its course: the new reality of Climate Change says there is no "getting and spending" our way out of this one. Looks like Hobson wasn't radical enough.
Only TIAA hanging out there.
1.5 years til I activate the annuity.
Hey! my dear friends or soon-to-be's, JtC could use the donations to keep this site functioning for those of us who can still see the life preserver or flotsam in the water.
This gives me a great idea!
I will forgo working for a living and take out at least two new credit cards with as much of a cash advance allowance as I can find and then I will run one up and pay it off with another and then maybe I'll get lucky or something or I can pay another off the other one off by borrowing against my house and/or tax return........ forget all you working stiffs! This is the way to go!
Why didn't I think of this sooner?
"I can't understand why people are frightened of new ideas. I'm frightened of the old ones."
John Cage
I don't think proles are allowed to get away with this. Are
you a banker? A 1%er? Beloved by Hillary? May be time for a rethink. : )
"The justness of individual land right is not justifiable to those to whom the land by right of first claim collectively belonged"
heh...
"I can't understand why people are frightened of new ideas. I'm frightened of the old ones."
John Cage
Right. In this world
if you are not "too big to fail" you are too small to bother saving. You know, like the people of the 9th Ward of New Orleans, or those of Flint, MI, or the goddam whole nation of Greece.
If you refuse to serve Moloch, you may well end up a sacrifice. And we wonder why our world is so violent...
It's a consequence of ZIRP
When interest rates are dirt cheap it makes sense to load up on debt.
In our former economy, companies would be borrowing to build plant and equipment and retailers would borrow to expand stocks cheaply. The building and lowered retail prices would lead to buying and more jobs, pulling the economy out of recession.
Instead the borrowed money goes for stock buybacks and M&A, so the rich get richer and the economy stagnates. Because this is no longer a productive competitive economy. It is a financial and monopolistic economy.
I've seen lots of changes. What doesn't change is people. Same old hairless apes.
That's part of it
It's also the end of a credit/business cycle.
Well said. This is exactly where most of the money is going
and, although it's enriching for a few, it is non-productive.
The suppressed interest rates are wreaking havoc with people who saved and wreaking havoc with defined benefit retirement plans at the state and local level. Who is benefiting? It's not the rank and file citizens for sure.
"The justness of individual land right is not justifiable to those to whom the land by right of first claim collectively belonged"