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Stockman: Corporate America Is Cannibalizing Itself
NewsMax ^ | March 9, 2015 | John Morgan

Posted on 04/01/2015 12:35:16 AM PDT by concernedcitizen76

American businesses are borrowing at historic high levels, but the only thing growing as a result is how fast their equity capital is vanishing, according to David Stockman, White House budget chief during the Reagan administration.

Stockman blamed the Fed and the Fed's Wall Street cheerleaders. He said the Fed’s balance sheet has ballooned by nine times since 2000, yet real net investment in the business sector has cratered by 33 percent during the same time period.

“Once upon a time businesses borrowed long term money — if they borrowed at all — in order to fund plant, equipment and other long-lived productive assets.”

“Today American businesses are borrowing like never before ... trillions of debt is being issued to fund financial engineering maneuvers such as stock buybacks, M&A and LBOs, not the acquisition of productive assets that can fuel future output and productivity.”

In Stockman’s view, central bank “financial repression” — in the form of artificially low interest rates that have been orchestrated to provide a false prop to the economy — is responsible for fueling stock market bubbles that makes stock repurchases and other short-term financial engineering maneuvers profitable.

For 2015 to date, corporate bond issues total $241 billion ... or nearly double the run rate prior to the 2008 financial meltdown. “et virtually all of this massive debt issuance has been cycled into after-burner fuel for the rocketing stock market. During the month of February alone, stock buybacks for the S&P 500 were a record $104 billion.”

Stockman explained that the titanic splurge in corporate debt issuance conceals the fact that real net investment in the U.S. business sector shrank sharply from $400 billion annualized in the fourth quarter of 2007 to only $300 billion annualized in the fourth quarter of 2014.

(Excerpt) Read more at newsmax.com ...


TOPICS: Business/Economy
KEYWORDS: banking; bubble; buybacks; corporateamerica; davidstockman; debt; economy; equitycapital; finance; fiscalabyss; fiscalcliff; obama; stocks
In Stockman’s view, central bank “financial repression” — in the form of artificially low interest rates that have been orchestrated to provide a false prop to the economy — is responsible for fueling stock market bubbles that makes stock repurchases and other short-term financial engineering maneuvers profitable.

For 2015 to date, corporate bond issues total $241 billion — a giant $1.4 trillion annualized run rate, or nearly double the run rate prior to the 2008 financial meltdown, he noted. “Yet virtually all of this massive debt issuance has been cycled into after-burner fuel for the rocketing stock market. During the month of February alone, stock buybacks for the S&P 500 were a record $104 billion,” he added.

Stockman explained that the titanic splurge in corporate debt issuance conceals the fact that real net investment in the U.S. business sector shrank sharply from $400 billion annualized in the fourth quarter of 2007 to only $300 billion annualized in the fourth quarter of 2014.

1 posted on 04/01/2015 12:35:17 AM PDT by concernedcitizen76
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To: concernedcitizen76

I’ve been saying this is the only thing keeping them afloat while people don’t have money to spend.

The musical chairs only work until the music stops.


2 posted on 04/01/2015 12:46:26 AM PDT by SaveFerris (Be a blessing to a stranger today for some have entertained angels unaware)
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To: concernedcitizen76

corporations are borrowing money at almost zero interest rate to artificially increase their stock price, thus increasing their bonuses


3 posted on 04/01/2015 1:07:38 AM PDT by 4rcane
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To: concernedcitizen76

“That can’t possibly taste good.”

4 posted on 04/01/2015 1:38:52 AM PDT by RichInOC ("I do wish we could chat longer, but I'm having an old friend for dinner. 'Bye!")
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To: RichInOC
lol
5 posted on 04/01/2015 1:46:12 AM PDT by Liberty Valance (Keep a simple manner for a happy life :o)
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To: concernedcitizen76

I believe a lot of companies listed on the stock market are guilty of short-termism. Releasing your results every quarter leads to “let’s do anything to keep the stock up this quarter”, instead of longer-term planning. I believe the right approach should be yearly results and forecasts only.


6 posted on 04/01/2015 2:08:48 AM PDT by Cronos (Obama’s dislike of Assad is not based on Assad’s brutality but that he isn't a jihadi Moslem)
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To: 4rcane

Shades of the Housing bubble when people surfed credit cards and rolled houses artificially.

Current stock sale valuations are an artificial fraud.


7 posted on 04/01/2015 2:09:43 AM PDT by lavaroise (A well regulated gun being necessary to the state, the rights of the militia shall no)
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To: concernedcitizen76

Bkmk


8 posted on 04/01/2015 2:18:40 AM PDT by Oratam
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To: concernedcitizen76

Thanks for this post. It very clearly explains how stock prices can be in the stratosphere while the economy is struggling. I did not realize corporations could borrow money to buy back stock. It seems so wrong.


9 posted on 04/01/2015 2:25:36 AM PDT by grania
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To: concernedcitizen76

Stockman makes a good point here, but he’s overlooked something. Corporate borrowing in 2015 has likely driven by the understanding that the Fed will raise interest rates this year. As ridiculous as it sounds, it may be in a company’s best interest to borrow money at historically low interest rates even if it doesn’t need the money for anything related to its growth or operations ... hence, the stock buybacks.


10 posted on 04/01/2015 3:55:30 AM PDT by Alberta's Child ("It doesn't work for me. I gotta have more cowbell!")
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To: concernedcitizen76

The wealthy no longer invest in business, they invest in politicians.


11 posted on 04/01/2015 4:15:17 AM PDT by killermosquito (Buffalo, Detroit (and eventually France) is what you get when liberalism runs its course.)
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To: killermosquito

Better ROI.


12 posted on 04/01/2015 4:24:37 AM PDT by Mashood
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To: concernedcitizen76

Interesting. Thanks for posting.


13 posted on 04/01/2015 5:31:33 AM PDT by PGalt
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To: concernedcitizen76

Corporations may be screwing up their businesses but they can be proud of successfully pushing anal sex (and it’s diseases and insanity) and gay “marriage” on the globe. They brought us Obama, too!


14 posted on 04/01/2015 10:16:51 AM PDT by SaraJohnson
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