Friday, June 5, 2015

Today's links

1--US defence secretary challenges China at Singapore security forum, wsws

2--OECD cuts global growth forecast amid growing financial turbulence, wsws

3--A Critique of US “Grand Strategy Toward China, James Petras

4--Soros Flaring Flames of Ukraine War to Force Regime Change in Russia, zuesse

5---Could The New Silk Road End Old Geopolitical Tensions?,

6--Hey, where's my raise?

-non-supervisory workers which comprise some 82% of the US labor force, remain stuck with nominal wage growth which barely covers inflation at about 2.0%.

7--A Closer Look at Goldman Sachs’ Stance on Share Buybacks

The media frenzy this week over buybacks was fueled by a research note released by Goldman Sachs which likened today’s buybacks at high market multiples to the bad investment decisions on buybacks that corporate CFOs made just before the market crashed in 2008. Goldman noted in its research release that:

“Exhibiting poor market timing, buybacks peaked in 2007 (34% of cash spent) and troughed in 2009 (13%). Firms should focus on M&A [mergers and acquisitions] rather than pursue buybacks at a time when P/E [price to earnings] multiples are so high.”
In September of last year, the Harvard Business Review published its own study on buybacks titled “Profits Without Prosperity.” The findings are outlined as follows:

“Corporate profitability is not translating into widespread economic prosperity. Five years after the official end of the Great Recession, corporate profits are high, and the stock market is booming. Yet most Americans are not sharing in the recovery. While the top 0.1% of income recipients—which include most of the highest-ranking corporate executives—reap almost all the income gains, good jobs keep disappearing, and new employment opportunities tend to be insecure and underpaid. The allocation of corporate profits to stock buybacks deserves much of the blame.”

There, in five plain English sentences, is your Doctoral thesis in who’s benefitting from stock buybacks. If you haven’t guessed by now just who it is that is driving this trend, the Harvard Business Review fills in more details:
“Why are such massive resources being devoted to stock repurchases? …in the short term buybacks drive up stock prices. In 2012 the 500 highest-paid executives named in proxy statements of U.S. public companies received, on average, $30.3 million each; 42% of their compensation came from stock options and 41% from stock awards. By increasing the demand for a company’s shares, open-market buybacks automatically lift its stock price, even if only temporarily, and can enable the company to hit quarterly earnings per share (EPS) targets.” 

According to data from Birinyi Associates, for calendar years 2006 through 2013, corporations authorized $4.14 trillion in buybacks of their own publicly traded stock in the United States. Bloomberg News, citing research from Goldman Sachs, reports that companies in the Standard and Poor’s 500 “will dole out more than $1 trillion, or two-thirds of their cash, buying back stocks and repaying dividends this year.” According to Goldman, that $1 trillion eclipses the $921 billion the same firms will spend running their business and on research and development.”

The debt these companies are taking on to work this alchemy could prove to be a future time bomb in the making. In 2013 alone, corporations authorized $754.8 billion in stock buybacks while simultaneously borrowing $782.5 billion from credit markets.
Data compiled by Bloomberg shows that “Investment-grade non-financial companies issued $366 billion in bonds in the past two quarters. The $194.6 billion they sold in the first quarter was the most in history.”...

Could taking on debt and buying back shares become an addiction? One year after the April 2013 $17 billion debt deal by Apple, Goldman Sachs and Deutsche Bank co-led another $12 billion debt offering for Apple in April of 2014. So far this year, Apple has issued $6.5 billion in debt in February and another $8 billion on May 6. Goldman Sachs & Co., Bank of America Merrill Lynch and J.P. Morgan were involved in Apple’s May offering, which was specifically earmarked for share buybacks and dividends.

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