Saturday, May 9, 2015
Friday Corporate Beaver
Where has all the money gone?
Stock prices are at an all time high but consumers aren't rushing out to buy the latest fridge or flat screen. Corporations given what amounts to free money are off shoring it, paying little or no tax on it and reaping the rewards. Savers desperate for income have ventured into buying corporate bonds. Most savings accounts now pay about .25% interest if even that. This bodes well for CEOs who's bonuses are based on driving up the price of a company stock. That doesn't mean a company is actually making a profit. And what isn't being said or noticed is the amount of money corporations are borrowing. Non financial corporate debt stands at $1.6 trillion or 60% over profits. Gross cash flows have been at a mere 4%.
You'll note companies buying back their own stock. That's because their sales are so bad it's the only way to keep their stock price high. One caveat to all this is that it works well in a bull market but when the tide turns there's still the borrowed money to consider. Paybacks can be a bear (pun intended).
So how long can they keep this grand illusion going is anyone's guess, but one thing is certain it can't last forever. Who will flinch first an start the sell off? And who will be smart enough to get out while the getting is good. Guess it's human nature to wait until the very last second but by then you might just get run over by the heard leaving the building.
Keep an eye on Greece because next month they'll be faced with a repayment on their debt that there's no way they can make. The IMF and Euro zone banks have successfully sucked that country dry. And once again the off shoring of wealth was the primary cause.
Speaking of banks let's see what they did.
We have one bank in Chicago, Il that hit the skids this week. First one since Feb.