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Where The Levered Corporate "Cash On The Sidelines" Is Truly Going

Tyler Durden's picture


We have long been pounding the table on what in our view is the biggest detriment to any future growth for not only corporate America, but the entire US (where, sadly, government investment IRRs just happen to be negative - a fact that most won't understand until it is too late, especially not self-anointed economic wisemen whose only solution to everything is "do more of the same" yet who thought the utility of the Internet would be eclipsed by that of the fax machine): the complete lack of capital expenditures at the corporate level, and lack of (re)investment spending.

This was explained extensively previously here, and even the WSJ finally caught on to what is the most disturbing trend over the past "New Normal" 4 years. What was also explained, is that instead of investing in CapEx and hiring, or said otherwise, real sustainable future growth coupled with benefits for workers and consumers, companies have little choice but to pursue shareholder gratifying, short-term IRR boosting "projects" like M&A, dividends and buybacks, or else feel the wrath of scorned shareholders who will simply dump said prudent company's stock and move on to the next company which is more generous with its declining cash flows, and puts shareholders above all.

This is summarized simply on the chart below.

It turns out that, however, that there is more to the story, and as the following chart from SocGen's Albert Edwards shows, not only are companies using up what actual free cash flows they have for such stupid stock boosting gimmicks such as harebrained M&A (just look at the recent fiasco between HP and Autonomy to see how rushed M&A always ends), and of course buybacks, but they are now levering to the hilt to do even more of this. Think Spanish and Italian banks using repoed ECB "equity" to buy back not only their but their sovereign's bonds. The last time they did this? The golden days of the credit bubble.

The chart above also shows the rise in bank lending in recent months: it is not going to retail borrowers for such trivial Uses of Proceeds as buying houses. It is going almost exclusively to IG and high-HY rated companies to pursue buybacks.

This is how Albert Edwards sees the problem in a note relased today:

The charts below show the source of this recent recovery in bank lending to the private sector. It is clear that loans to the industrial and commercial sectors (dotted line) have been the key swing factor over the last two years for driving overall bank lending.


It is also notable, looking at a longer term chart, how small bank lending to the industrial and commercial sector is relative to the real estate related and consumer category, the former being some 3x larger. Yet despite the moribund lending activity to the real estate and consumer lending, the total aggregate lending data looks healthy as a cyclical recovery in corporate borrowing drives the aggregate data higher (see left-hand chart below).


But what are companies doing with this extra borrowing? They certainly don?t seem to be spending it on investment, which has been plunging.


And therein lies the rub: neither organic cash flow, nor incremental net debt issuance (not gross, as the balance merely goes to roll over maturing debt and to refinance the capital structure into a cheaper cost of debt) is being used for "invesment, which has been plunging." It is instead being used to fill the void created by Bernanke's ZIRP, now that equities have to be the new debt and provide the return to investors once obtained from fixed income.

So while we have beaten this particular dead horse to death many times, here it is straight from another horse's mouth, how in not so many words, Ben Bernanke's policies are actively destroying America's Corporate capital base, and are setting the stage for an epic collapse in Return on Assets, if not so much Return on Equities in the CapEx-free years to come:

So on this data the corporate sector is borrowing heavily, both in the markets and from the banking sector, to suck up their own stock at a 4% annual rate ?albeit not as heavily as in 2007 or 1987. So to that extent, Helicopter Ben?s approach of printing money to drive asset prices up actually seems to be working! Newly printed money is clearly finding its way into the hands of willing corporate buyers of equity via the banking sector.


Putting aside for one moment just how lunatic a policy this is (already tried and tested between 2001 and 2006), we think corporates borrowing by the bucketful to buy in their own equity will end badly -? it always does! I finish this note with an insightful, more bottom-up analysis of this practice from my Quant colleague Andrew Lapthorne.


Andrew wrote, ?Of course, there are some perfectly sensible reasons put forward by corporate financiers for swapping today?s expensive equity (i.e. cheap from an investor?s point of view) for cheap debt (record low yields), especially given the ability of many corporates to issue 20+ year bonds plus the incentive that interest payments currently remain tax deductible.


We know that buybacks are contrarian indicators, occurring at the top (and not the bottom) of the market. Why, we ask, are companies leveraging up now and not 12 months ago, when equity prices were much lower? We conclude that (contrary to what we read), US dividend payments are not enjoying a revival relative to cash flows and that buybacks remain the distribution channel of choice for corporates wishing to boost EPS and limit the effects of option dilution. Indeed, some of the biggest US names have issued debt to pay for buybacks (Home Depot, Microsoft, Amgen, Hewlett Packard, McDonalds, DirectTV, to name but a few) but there are also firms in Europe that have been doing the same (Siemens, Telenet, Adecco). In the current economic climate, you may find this surprising ? we do too! A buyback in this form is not a return to shareholders ? it?s called gearing or balance sheet risk and will come to haunt some firms when the economy enters a downswing.


Andrew shows just how awful the timing of companies buying in their own equity has been historically. Often the corporate sector ends up as the only major buyer of stock near the peak of the market and then switches to issuing as the market crashes. This inevitably has exacerbated the equity boom and bust in recent years. And as pension funds now cannot tolerate the 50% plus draw-downs of the last decade, it can also be said that this corporate finance zaitech has contributed to the death of the cult of the equity, where equities once totally dominated the portfolio of most pension funds.


But can this time around be different? I seriously doubt it. When the next leg in the ?structural bear market? occurs, expect the equity buybacks to end, contributing to a renewed steep downturn in bank borrowing and monetary aggregates. The recent surge in the money data should be seen as a sign of the ills in the US economy, not health!

We could not have said it better.


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Wed, 11/21/2012 - 12:22 | 3002173 Titus Flavius C...
Titus Flavius Caesar Vespasianus Augustus's picture

So you're saying there's still a chance the economy will improvenate?

Wed, 11/21/2012 - 12:27 | 3002191 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

We're saying it's a shitshow.

Corporate or government, it's a total shitshow.

The corporations suck ass and lie, cheat and steal, need money, then the government, which also lies, cheats, and steals, threatens the end of the world as we know it unless the people give up their wealth to the corporations that sucked ass.

Total fucking shitshow all the way down the toilet.

Wed, 11/21/2012 - 12:41 | 3002251 Big Slick
Big Slick's picture

The timelag in difference between S&P index and corporate buyback plots is interesting.  I've heard some argue (like Biderman) that these buybacks are largely driving the market.  If so, why does the market peak prior to buybacks peaking?

I realize there are vast and complex forces at play here, but still... 

Wed, 11/21/2012 - 12:43 | 3002254 camaro68ss
camaro68ss's picture

god this is going to be a shit show when this all unwinds. Lord help us all.

Wed, 11/21/2012 - 12:55 | 3002288 walküre
walküre's picture

It will surprise many. Was talking to some Germans the other night. I thought with their first hand exposure to the sad reality of a manipulated currency and fractional reserve lending, they would see the light by now. Nope. They still blame Greece, their alleged unwillingness to "reform" and the real estate bubble in Spain. They cannot comprehend that unemployment isn't a Greek or Spanish curse or that too many public service sector employees and their pensions or other entitlements will bring Germany to its knees as well. They're not even willing to consider that the German powerhouse economy is going to slide into recession, let alone a severe depression. I gave up trying to get my points across.

Wed, 11/21/2012 - 14:43 | 3002757 AldousHuxley
AldousHuxley's picture

Germans save like Jews after experiencing loss at two world wars (reparations to pay for winners). However, the country is still in debt. because average germans have no control on large enterprises nor government spending.

That's because debt = on a boom. when boom goest bust, workers pay for misplaced bets by politicians and corporate titans.


basically leaders around the world suck at being leaders and have shown that they have zero legitemacy.

Wed, 11/21/2012 - 18:21 | 3003409 HungryPorkChop
HungryPorkChop's picture

Here's a 5 minute that sums up Greece.  It's hilarious!

Wed, 11/21/2012 - 18:25 | 3003417 Manthong
Manthong's picture

In case anyone has been wondering, all the CapEx has gone to China. 

Wed, 11/21/2012 - 22:34 | 3003812 Michaelwiseguy
Wed, 11/21/2012 - 13:32 | 3002296 Titus Flavius C...
Titus Flavius Caesar Vespasianus Augustus's picture

Dude, don't worry.  Obama is gonna set you up nice in one of the Hope Camps.   You'll probably have to do lots of reading to correct your BadThink, but that's a small price to pay to create Hopetopia.


Once DHS gets rid of all those Firsters  {those who think the 1st Amendment exists} the rest of us will simply get our chips and stop having to worry about anything anymore except contemplating the glory and power of our Dear Leader.


Wed, 11/21/2012 - 12:56 | 3002289 Big Slick
Big Slick's picture

Another telling thing about that very powerful first graph is dissuasion of the notion that corporate 'insiders' are sophisticated market participants.  I thought the idea is to "buy low, sell high." Not the other way around. (I read that in a book somewhere)

Wed, 11/21/2012 - 14:46 | 3002775 AldousHuxley
AldousHuxley's picture

consistent way to beat the market (pricing determined by millions of investors) is to trade on inside information.



Wed, 11/21/2012 - 18:35 | 3003447 blunderdog
blunderdog's picture

The corporate insiders may well be SELLING the shares that are being bought back.

Wed, 11/21/2012 - 15:57 | 3003030 archon
archon's picture

I think of it as a risk-transference engine...  buying one's own equity is trasferring risk from shareholders to the firm's management.  Fewer external stakeholders means less external accoutnability.  The difference between buying one's own debt and buying one's own equity is merely a matter of perspective - on the one hand you write yourself an iou, on the other you write yourself a u-o-me.

Wed, 11/21/2012 - 17:55 | 3003365 Larry Dallas
Larry Dallas's picture

I can't think of any companies off hand that have completed any of their buyback programs as announced. Not in the past 10 years.

This is the oldest trick in the book. Short term pop, then forgotton about tomorrow.


Wed, 11/21/2012 - 18:06 | 3003385 kliguy38
kliguy38's picture

Its all to maintain CONtrolfidence

Wed, 11/21/2012 - 12:33 | 3002212 Winston Churchill
Winston Churchill's picture

Suffocate under the blanket of mal investment.

Not only is the Govt. pushing on a string ,now the corporate sector is as well.

This going to end so well,that it will make the Great Depression look like a Bake sale.



Wed, 11/21/2012 - 18:08 | 3003388 bagehot99
bagehot99's picture

What does Obama's leading troll MIllion Dollar Bonus have to say about any of this, or has he, ahem, fucked off?

Wed, 11/21/2012 - 19:45 | 3003551 Its_the_economy...
Its_the_economy_stupid's picture

I think MDB is just playing w the crew. it's all tongue in cheek.

Wed, 11/21/2012 - 12:58 | 3002295 davinci7_gis
davinci7_gis's picture

THE FED is buying $45Billion a month in MBS and the economy is still not going anywhere!

Wed, 11/21/2012 - 12:25 | 3002178 Cognitive Dissonance
Cognitive Dissonance's picture

More of the same (insanity) always seems to work.............until it doesn't.

<Clean up on aisle three.>

Wed, 11/21/2012 - 12:27 | 3002189 LawsofPhysics
LawsofPhysics's picture

Even more insider "circle jerking" by those entitled stanford and harvard business school graduates? So, the capital and resource mal-investment and mis-management continues.

Again, color me "shocked".

Wed, 11/21/2012 - 13:44 | 3002454 augustus caesar
augustus caesar's picture

I agree that it's a circle jerk, but this was never intended to be investment or capital building in any way ... it's an escape pod, they're buying back stock with taxpayer borrowed money so that the insiders can cash out leaving the taxpayers and pensioners holding the bag.

Wed, 11/21/2012 - 19:30 | 3003530 RockyRacoon
RockyRacoon's picture

It appears you may have struck upon the Universal Corporate Truth.  I'd keep an eye out for black SUVs pulling up in your driveway.  Got lead?

Wed, 11/21/2012 - 12:29 | 3002197 Silver Garbage Man
Silver Garbage Man's picture

The GREAT PONZI is coming to an end.I hope you are ready.

Wed, 11/21/2012 - 12:40 | 3002242 inevitablecollapse
inevitablecollapse's picture

when?  i do believe that things are 'shittier' than normal, but does anyone have a prognostication on a range of time?  i see a lot of folks that are adamant that it will be ending, but not a lot of discussion centered around when?  is collapse inevitable in 6 mos, 12 mos 5 years?  not necessarily directed at you SGM, but a general question to anyone that has thought this out and has timing in mind?  what will send this entire shit-show into hyperdrive?

Wed, 11/21/2012 - 12:43 | 3002260 camaro68ss
camaro68ss's picture

for 50 million americans in poverty, its already happend

Wed, 11/21/2012 - 12:48 | 3002275 Silver Garbage Man
Silver Garbage Man's picture

If I told you your house was going to blow up sometime between now and 5 years from now, when would you leave?

Wed, 11/21/2012 - 13:12 | 3002357 inevitablecollapse
inevitablecollapse's picture

good point, though there is parallel risk in everything we're involved in.  if i told you that there was a 100% chance you would die, when would you give up on life?

Wed, 11/21/2012 - 13:19 | 3002383 ParkAveFlasher
ParkAveFlasher's picture

You would give up on life every moment you remain in the house.

Wed, 11/21/2012 - 13:56 | 3002529 Silver Garbage Man
Silver Garbage Man's picture

I'm not giving up on life, I'm giving up on fiat,fraud and corruption.....the rigged casino.

Wed, 11/21/2012 - 13:58 | 3002538 Silver Garbage Man
Silver Garbage Man's picture

I'm not giving up on life, I'm giving up on fiat,fraud and corruption.....the rigged casino.I'm getting back to life.

Wed, 11/21/2012 - 20:33 | 3003628 brettd
brettd's picture

Just my house or the whole neighborhood? City? State?

Depends on where I could go that won't explode....

Wed, 11/21/2012 - 20:33 | 3003629 brettd
brettd's picture

Just my house or the whole neighborhood? City? State?

Depends on where I could go that won't explode....

Wed, 11/21/2012 - 12:49 | 3002276 SMG
SMG's picture

My best guess, cause a defaltionary depression next year (pick up real assets by the Elite on the cheap one last time), lasting as long as 6-8 months before the next election in 2014.  At that point, start the hyperinflation which will temporarily boost sentiment and reelect the status quo in 2014.  After that election, dollar collapse and hyperinflation.

By then the depopulating nuclear/WMD WWIII will be set up and could start anytime within the next 4-8 years.

After that the Elite rise from their bunkers and offer us whatever is coming next.

Just my opinion.

Good luck I hope we all make it to the other side.  What a time to be alive.



Wed, 11/21/2012 - 13:04 | 3002320 inevitablecollapse
inevitablecollapse's picture

thanks for this - i really just wanted to get some feedback on sentiment, appreciate your response.  i don't believe there's an empirical way of determining the when, which for me is the most difficult part.  i do think that there will be some 'surprises' along the way...

Wed, 11/21/2012 - 14:26 | 3002677 Invisible Hand
Invisible Hand's picture

When is obviously the key but impossible to know.

As Yogi said:  "Forecasts are hard, especially about the future."

The difficulty with complex systems (like the economy) is that they do not change gradually (for the big changes) they change in a stepwise fashion.

Most people will continue to have faith in fiat until critical mass of opinion is reached and suddenly no one (outside of the professional liar class--politicians and their tame media) will want fiat.  Buy PM's now before everyone wants to but no one can. 

Caveat:  The government will confiscate PM's immediately after the crash and they will be illegal to own for a half century, or until the government collapses, whichever come first so how much protection are they?

Collapse of the financial system will probably be intiated by major sovereign defaults (Europe or Japan are most likely).  This will be followed by derivatives blowing up all major financial firms.  Kyle Bass says he doesn't know when Japan will go, so I certainly wouldn't guess.

What do you do to protect yourself from this?  Again, buy PM's, land and commodities.  Can you retain title to any of these things after the collapse.  Who knows but I doubt it?

I don't see anyway to protect yourself and your family in the coming years, except maybe going all survivorish way off the grid and we're too old and sick to do that.  Not sure even that will work.

Have a nice Thangsgiving!

Wed, 11/21/2012 - 19:16 | 3003506 jumbo maverick
jumbo maverick's picture

Pertaining to title of lands I could see the following take place but you would have to have out of the box thinking people to accomplish it-

I live for the most part in a geographically large rural county. There is not much money here and business/employment is weak but there is an awful lot of land. Much of it valuable farm land.

My county commissioners, sheriff and the coroner could draw up plans for an immenant collapse, a collapse which I think is unavoidable. They could use some kind of reasonable criteria, as an example if the federal government officially states the economy is in a depression, or if official unemployment for the country rises above 10percent. This would take reasonable people making reasonable decisions.

Once the criteria is met then title to your home or property is turned over to you even if you still owe money to a bank. I agree with rule of law. I agree with contractual law as well. Here in lies the problem, see the way I figure it is that the banks were already paid for all the property within the united states by way of programs such as TARP, QE1, QE2, QE to infinity.i and my family will pay the rest of my life to the banks for these programs and on top of that I will still make my monthly mortgage payment. My son who ain't even of working age will pay for these programs till the day he dies too. So no matter what you or anyone else says I've already paid.

When the bank people come calling the sheriff can just say to them, nope everybody in this county is done from here on out. Its hands off and you won't get nothing. Nobody is being evicted, in fact all the property has been turned over to the people living in the homes.

When and if members of th federal government come to assist the bank people the sheriff can tell the, get out and don't come back. The whole fucking county has been deputized. Everybody is armed. Go somewhere else you won't get anything from us.

Again I would have been happy just paying my mortgage but the government and the banks did a dirty trick by making the regular guy like me double pay. I pay for my own home and now I'm also paying for all this other horseshit on top of it so they can just fuck off.

Wed, 11/21/2012 - 20:44 | 3003639 brettd
brettd's picture

Think more like a python than an earthquake.  It's not like the movies.

Medium sized "hits" to the economy, that give politicians a chance to "fix" things.

ie:  big downswing in market. Retirees scream bloody murder.

govt solution:  "for those 55 and over we'll restore your IRA to it's pre-hit level...but with patriotic, tax exempt government bonds...."

After that, there will be another.  

Perhaps a spike in youth unemployment:  

So, government says, "Student loan forgiveness via government "work".



Wed, 11/21/2012 - 13:09 | 3002339 walküre
walküre's picture

The deflationary depression happened in 2008. We're well into the hyperinflation scenario.

The CBs have to print massively at this stage. If we deflate from here, the elite and their fairy tale governments are toast.

Wed, 11/21/2012 - 13:42 | 3002464 Relentless
Relentless's picture

I dunno about nukes flying, but I've always considered that this winter is going to be the point it all becomes unhinged.


The US could probably keep the can kicking and monetising working for quite a while yet if it wasn't for Europe. The ECB is is sitting on top of a pressure cooking full of boiling turds. They keep ratching down the clamps, but they can't turn off the heat. At some point during the next couple of months either Greece or Spain is going to reach the point of not paying anything because they don't have the money and then its going to unwind fast and everyone is going to be wiping shit off of their faces. The financial crisis will take everyone down. There won't be global war because no one can afford it, but they will deperately try to blind everyone to the existence of the crisis with either a new super deadly flu scare in Jan/Feb or quietly egging on all the sides in the ME for local conflicts that don't actually cost the US much but which absorb all of the media bandwidth.


Unless of course some Mayan nutters have managed to take control in the government and are actively trying to make everything go pear shaped in December....


Remember Germany didn't do to war during its econmic troubles, it went to war after it had recovered from them.


Wed, 11/21/2012 - 15:43 | 3002973 Nobody For President
Nobody For President's picture

Plus one for 'a pressure cooker full of boiling turds' ...

Wed, 11/21/2012 - 20:48 | 3003659 brettd
brettd's picture

Their "recovery" was driven by re-militarization....

Wed, 11/21/2012 - 13:56 | 3002528 stockscooter
stockscooter's picture

My contention, for some time now, has been that we may see something that has never happened before–Deflation with rising interest rates.  The deflation stems from the continued credit contraction and derivatives melt-down.  Rising rates will not come form rising food costs through the commodity markets as some suspect. But it will come from the downgrading of the U.S. Treasury Bond.  We’ve already seen if fall from AAA to AA by the S&P rating agency, over a year ago.  Finances are worse for the U.S. today then back then.  Election year politics have prevented another downgrade.  But mark my words, another one is coming. Our national deficit has grown larger than our annual GDP!  The downgrade in credit worthiness will push rates up as buyers of our debt will demand higher returns for the increased risk.  No one is talking about this, yet it seems obvious...

Wed, 11/21/2012 - 13:03 | 3002302 Big Slick
Big Slick's picture

Precise timing is impossible.  Less likely than a rapid catastrophic collapse, is a slow motion implosion.  Like being locked in a refrigerator that is tumbling down a long stairway to hell.

"when she gets there she knows..."

Wed, 11/21/2012 - 13:09 | 3002337 inevitablecollapse
inevitablecollapse's picture

i too have a feeling that this is going to be a more gradual degradation over time - quality of life will decrease, more 'uneasiness' being felt, etc. etc. of course, there could be a catalyst to set this whole thing aflame, but i would anticipate a gradual decent into oblivion

Wed, 11/21/2012 - 14:43 | 3002758 reload
reload's picture

My take too, the attempts to `fix` the monetary system are designed to fail. But many still believe that it is just a matter of time until the world goes back to 1995 or 2005 -because this is the mantra the media are following. Unfortunately for us all, life is going to slowly morph into being a police state `foxcon model` for most citizens of the developed world. I fear the steady march of the corporate / police state far more than a quick collapse of evaporated financial assets and broken supply chains. Individuals can take responsibility and prepare to come out the other side of a sudden collapse, but remaining `free` from the shackles of what looks more likely is possibly impossible.    

Wed, 11/21/2012 - 20:50 | 3003662 brettd
brettd's picture

You'll see demographic shifts:  Out of New England/Ohio and into the south & southwest.

Wed, 11/21/2012 - 12:34 | 3002208 Waterfallsparkles
Waterfallsparkles's picture

Although Wall Street always likes Buy Backs and rewards the Stock.  I have always seen the Buy Backs as negative. 

I believe that when a Company reverts to Buy Backs they know they are going to miss earnings revenues and need to reduce the number of shares so that the earnings are based on the lower amount of Shares outstanding.

Wed, 11/21/2012 - 12:37 | 3002227 narnia
narnia's picture

what's the alternative, dividend the cash to shareholders & subject it to double taxation?  

Wed, 11/21/2012 - 12:48 | 3002271 mayhem_korner
mayhem_korner's picture



The alternative is not to buy back shares held by shareholders, irrespective of dividend policy.  All these clowns are doing is taking the returns generated from 100 shares of invested capital and expressing them over 90 (or some other post-buyback number).  Simple shrinkage of the denominator makes things like EPS look larger.

Speaking of shrinkage...

Wed, 11/21/2012 - 12:40 | 3002244 mayhem_korner
mayhem_korner's picture



Buy backs are desperate attempts to try to improve the optical illusion of actual returns.

Here's my summary: (1) printing of Bernanks props up equities out of the need to park the liquidity largess into something, (2) pant-pissing corporate execs double down on the faux stock prices with buy backs, and...wait for it...(3) the combo of (1) and (2) fail to keep pace with the yield on gold & silver.  The moral: stack on!

Wed, 11/21/2012 - 13:15 | 3002369 walküre
walküre's picture

Really? Does Wall Street really like buy backs? When the execs of pubcos. take on debt to purchase their own newly freed up shares, than that is theft of productivity. The execs are leverging the pubcos. in order to write their own paycheques. The leveraged pubco. is more vulnerable to takeovers and less likely to survive in a downturn.

Ask the workers if they'd prefer their execs taking on corporate debt to buy their own shares or give the workers a raise?

Wed, 11/21/2012 - 12:33 | 3002210 SMG
SMG's picture

Everything seemed normal, like it was all going to be okay.  Things had seemed fine for years, it was like it could go on forever.  And then one day it happened, the day that changed everybody's lives.  What had we done?  How could we have been so irresponisble, neglectful, and ignorant?  Why did we let the criminals do this to us? 

Now we must all suffer, but we will survive this, and we will never let this happen again....

Wed, 11/21/2012 - 12:36 | 3002221 Winston Churchill
Winston Churchill's picture

Tell that to the  buyers reinflating the housing bubble.

All be the same in a hundred years.

Bah Bah.

Wed, 11/21/2012 - 13:18 | 3002377 walküre
walküre's picture

How much equity are these buyers actually putting into the places they're "buying"? Are they building equity?

That ship has sailed. The new buyers are ear-to-ear in debt and make minimum payments on everything they can get financed. Based on that, they cannot build equity unless we see hyperinflation of all assets and leave the debt principals in the rearview mirror when it takes off.

How do we get there?

Wed, 11/21/2012 - 12:40 | 3002245 camaro68ss
camaro68ss's picture

did someone from Rome say that?

Wed, 11/21/2012 - 13:08 | 3002334 Big Slick
Big Slick's picture

"... and we will never let this happen again"

Human history says that notion is wrong.

by Kipling...

The Gods of the Copybook Headings

AS I PASS through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.

We were living in trees when they met us. They showed us each in turn
That Water would certainly wet us, as Fire would certainly burn:
But we found them lacking in Uplift, Vision and Breadth of Mind,
So we left them to teach the Gorillas while we followed the March of Mankind.

We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market Place,
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its icefield, or the lights had gone out in Rome.

With the Hopes that our World is built on they were utterly out of touch,
They denied that the Moon was Stilton; they denied she was even Dutch;
They denied that Wishes were Horses; they denied that a Pig had Wings;
So we worshipped the Gods of the Market Who promised these beautiful things.

When the Cambrian measures were forming, They promised perpetual peace.
They swore, if we gave them our weapons, that the wars of the tribes would cease.
But when we disarmed They sold us and delivered us bound to our foe,
And the Gods of the Copybook Headings said: "Stick to the Devil you know."

On the first Feminian Sandstones we were promised the Fuller Life
(Which started by loving our neighbour and ended by loving his wife)
Till our women had no more children and the men lost reason and faith,
And the Gods of the Copybook Headings said: "The Wages of Sin is Death."

In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: "If you don't work you die."

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.

As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool's bandaged finger goes wabbling back to the Fire;

And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!

Wed, 11/21/2012 - 12:33 | 3002214 Dr. Engali
Dr. Engali's picture

They should be buying something tangible instead of wasting it on equity. They can prop the ponzi up for a while but eventually they will have no cash to survive.

Wed, 11/21/2012 - 12:44 | 3002259 RopeADope
RopeADope's picture

I think you meant to say they will have no earnings to survive. The monetary socialists will make sure they have plenty of cash even if it means air dropping it from Antonov AN-225 cargo planes around the world.

Wed, 11/21/2012 - 12:35 | 3002217 RopeADope
RopeADope's picture

So you are saying FASB 142 which was implemented at the real earnings peak was a way of enabling theft of shareholder capital on the downcycle without having to tell anyone?


And here I thought M&A activity during contractions was a good thing...

Wed, 11/21/2012 - 12:36 | 3002219 mayhem_korner
mayhem_korner's picture



I'm filing for the copyright on the term "leveraged buybacks."


Wed, 11/21/2012 - 13:20 | 3002388 walküre
walküre's picture

You got the idea. Speaking of canibalism. Did you see the pic of Romney pumping his own gas just minutes away from his $12 million mansion. He and the wife went to see that latest vampire flick. Few things didn't add up during the campaign either.

Wed, 11/21/2012 - 12:35 | 3002220 Liquid Courage
Liquid Courage's picture
Herbert Spencer....... "The ultimate result of shielding men from the effects of (their) folly is to fill the world with fools."

Me.......  The ultimate result of shielding thieves from their just desserts is to fill the world with thieves.

Wed, 11/21/2012 - 12:38 | 3002234 ebworthen
ebworthen's picture

So many parallels to 2007-2008, and there is even less money and more debt this time around.

Share buybacks of the FED inflated cotton candy markets.

Brilliant.  Bailout insurance mechanism.

And bonuses of course...

Wed, 11/21/2012 - 12:39 | 3002235 Cursive
Cursive's picture

Rule #1 of being a CEO:  You don't have to know anything about your company's business, but your career/life depends on your company's stock price.  Defend at ALL COST.  That is all.

Wed, 11/21/2012 - 13:06 | 3002326 NoDebt
NoDebt's picture

Bingo.  That's the answer that rings the most true.

Short-term thinking pervades as much now as it did before the crisis.  Why?  Why think only short term when you know it will cause trouble in the long term?  The answer is pretty simple, I think.


You think it's only ZH'ers who recognize the shit storm heading our way?  Are we the only ones wise enough to see the folly?  Doubtful.  Plenty of others can read the same tea leaves.  They're running around gathering up as many nuts as they can before it hits.  What the world looks like afterwards is anyone's guess.  THEN we'll develop a plan.  No point in doing it now.




Wed, 11/21/2012 - 13:10 | 3002345 adr
adr's picture

Evidenced by the CEO's average salary vs net worth in stock. To be worth $50 million a year in salary, a company would need to sell a lot more stuff. To be worth $50 million in stock per year, you just need Cramer to yell BUY, BUY, BUY!!!!

Wed, 11/21/2012 - 13:14 | 3002364 Unprepared
Unprepared's picture

Debt overhang makes positive NPV investment projects less attractive for management to pursue, as any future cash flows generated from said projects would disproportionally benefit bondholders while the risk is bore by shareholders (and management by extension).


The result is management engaging in self-sabotaging behaviors and zero capex. In such environment, it makes "sense" for both management to just keep borrowing/rolling over existing debt to increase stock prices/dividends at the expense of organic growth and future profitability prospects.

Wed, 11/21/2012 - 12:41 | 3002249 Piranhanoia
Piranhanoia's picture

answer;   Vegas, Macau, Monaco,  3 card monty.  Investing is only gambling after all.  Everyone thinks they have a system to beat the rigged wheel of fortune.   I'm going to spend 10K on lottery tickets today because my system can't be beat.  I play all the numbers or none.

Wed, 11/21/2012 - 12:48 | 3002272 Abraxas
Abraxas's picture

I designed a great system for myself, but I haven't followed through, so I lost... that is, I lost financially, and my Ego got deflated, but I learned a lesson in humbleness and humility. These are the qualities this country needs the most and desires the least.

Wed, 11/21/2012 - 13:25 | 3002402 RopeADope
RopeADope's picture

I remember an Australian investment fund back in the 90's that had a 100% chance of winning a big California lottery jackpot. They bought every ticket combination possible so were guaranteed in their minds to win the pot (netting a small profit)


I believe they ended up splitting it with 7 other winners...

Wed, 11/21/2012 - 12:47 | 3002268 banksterhater
banksterhater's picture

It's Bernancke's CRIMINAL OPERATION of NIRP allowing these TRAITOR CORPORATIONS to issue junk debt for buybacks, etc, we know that was the top last credit bubble.

Wed, 11/21/2012 - 13:23 | 3002398 walküre
walküre's picture

He had to satisfy the crooked execs because they know what the Fed is doing and they want their piece of the action. The revolution will deal with crooked bankers and greedy executives. Both groups are equally responsible for the demise of America and the impoverishment of the masses.

Wed, 11/21/2012 - 12:47 | 3002269 Downtoolong
Downtoolong's picture

Because, risk is so much easier to hide than dollars and cents.

Wed, 11/21/2012 - 12:52 | 3002283 Whiner
Whiner's picture

I can't figure out how long it will be befor the world wide finacial collapse (and war to grab brown men's assets). 400% world debt to GDP, 600%?Even with perpetual near-zero rates and sovereighn/bank refis, she should hit a deflationary bang moment well before end of Obammy's term, followed quickly by a rush to commodities which will trigger rampant inflation. Not trying to time her or project magnitude of end game, just buying PMs and energy on the dips. Bank runs come like a thief in the night, so cash keeping is problematic. Ramping up % of PMs.

Wed, 11/21/2012 - 13:07 | 3002330 adr
adr's picture

It keeps going until Bernanke has to turn off the presses. By that time it will already be too late to prevent the collapse.

As long as corporations don't have to sell actual product to enrich shareholders, this game will continue. The true product of corporate America today is paper fraud.

Wed, 11/21/2012 - 15:46 | 3002985 Nobody For President
Nobody For President's picture


Wed, 11/21/2012 - 12:56 | 3002290 dexter_morgan
dexter_morgan's picture


F.M.D., Jr.

Wed, 11/21/2012 - 12:56 | 3002292 Confundido
Confundido's picture

This guy foresaw this situation back in March, after the LTROs enables USDs to flood back to Europe, and keep funding the party:

Wed, 11/21/2012 - 13:03 | 3002315 orangegeek
orangegeek's picture

SP500 weekly shows substantial downside.


All the games are being played to keep stocks up while insiders exit their positions - exit positions but not crash the market in the process.

Wed, 11/21/2012 - 13:04 | 3002318 adr
adr's picture

Directors and CEOs are using essentially free corporate debt to funnel cash right into their hands, while the company is buying back shares, they are printing and selling their own. During buybacks insider sales have been enormous.

Reminds me of the scene in Men Who Built America where the two railroad guys were printing shares using a printing press in their office, while Vanderbilt was buying up every share he could. The guys were just sitting their laughing. Later that night they toasted to money, Vanderbilt money.

I see CEOs and directors sitting over $200 plate dinners in NYC toasting to money, Bernanke money.


Once again you don';t actually have to sell anything to become filthy rich anymore. Sure it is just FIAT, but until the paper becomes worthless you can buy anything you want, including stores of wealth that will still be worth something after the collapse. Every convicted counterfeiter should be set free, they did nothing compared to nearly every CEO in America.

Wed, 11/21/2012 - 13:14 | 3002365 Waterfallsparkles
Waterfallsparkles's picture

Net Flix was notorious for this.  The Company would Buy Back Stock the day before the Reid Hastings the Ceo would Sell his Stock Grants.

So, it is true that Companies Buy Back Stock in many times for CEO's and Exectuives to Sell at the highs.  Just like Net Flix.  Net Flix Bought back many shares in the $290. to $300. range.

Wed, 11/21/2012 - 18:01 | 3003371 buzzsaw99
buzzsaw99's picture

This comment nails it imo.

Wed, 11/21/2012 - 13:06 | 3002324 steelhead23
steelhead23's picture

So, Mr. CFO, you squandered all your company's operating capital and endebted our fine company, all in an effort to prop up stock prices.  And you personally cashed a bunch of your stock options at the same time.  With the market declining and sales in the toilet, how sir, does your past actions comport with your fiduciary duties.  Please have a detailed explanation, or your resignation, on my desk by noon today.  The Boss.

Wed, 11/21/2012 - 13:07 | 3002333 adr
adr's picture

Like the boss didn't tell the CFO to do it.

Wed, 11/21/2012 - 13:30 | 3002415 walküre
walküre's picture

What needs to happen is that the productive part of the company (a.k.a. the workers) organize (a.k.a. the union) and put all the execs in one room and spank them. Then kick their asses to the curb, declare their stock shenanigans a crime and the corporate debt odious. Do that in a number of large American corporations and see who is BOSS.

All that paper is worthless at best and illegitimate at worst. It doesn't exist. It's the figment of somebody's imagination which has become propaganda.

The reset will know no mercy and the paper millionaire will have to work like everybody else just to survive.

Wed, 11/21/2012 - 20:56 | 3003672 brettd
brettd's picture

And Litt'e Timmy and Uncle Ben are telling the C-suite to do it too!

Wed, 11/21/2012 - 13:06 | 3002327 monopoly
monopoly's picture

Albert Edwards has a lot of balls posting truth. Not sure if he will be around much longer. Oh, will we ever see the end of all the lies, deceit, theft of our once great nation. Or will end up as a banana republic as so many great powers have in the past?

Wed, 11/21/2012 - 13:11 | 3002352 Quinvarius
Quinvarius's picture

Hey!  Guess what?  My 85 billion dollar a month QE/ZIRP gorilla has your credit cycle gibbon in a headlock.  Stocks move on easy money.  It is the law of the land.  All who break the law are penalized severely. 

Wed, 11/21/2012 - 13:20 | 3002389 woggie
woggie's picture

the beast is on the gobble and all that matters is we're all headed for it's belly

Wed, 11/21/2012 - 13:21 | 3002390 q99x2
q99x2's picture

Golden days of the credit bubble. Something doesn't seem right that the Government should pay people to study Hamlet and Chaucer. Even though it is exciting that it wasn't a beard and all I do not believe this can go on. Maybe I'll be graduated by then.

Wed, 11/21/2012 - 15:49 | 3003000 Nobody For President
Nobody For President's picture

Paying people to study Hamlet and Chaucer beats the hell out of (and is a lot cheaper than) blowing up brown people with turbans in far-off countries.

Wed, 11/21/2012 - 13:39 | 3002452 Titus Flavius C...
Titus Flavius Caesar Vespasianus Augustus's picture

Kidding aside, why would anyone invest in stocks or bonds right now when there's so much gold, silver, bullets and seeds to be had?



Wed, 11/21/2012 - 18:07 | 3003386 Mitch Comestein
Mitch Comestein's picture

Why...because what if I am wrong.  What if my gold gets confiscated or stolen; this is coming from someone who have 60% in gold coins.   Bullets are in a bubble.  Seeds....who the fuck buys seeds!  They are like that "newly discovered cash of rare coins... that are always being sold on the radio.

Wed, 11/21/2012 - 13:51 | 3002493 Aurora Ex Machina
Aurora Ex Machina's picture

I realise this isn't the correct thread for this observation, but something I've been tracking.

Wednesday, November 07, 2012

With the economy slowly recovering, infrastructure investment will help spark growth and continue our path towards prosperity. In 2009, ASCE gave America’s infrastructure a “D-“ grade and called for $2.2 trillion in investment over the coming five years. Obviously, this investment has not been made, and consequently, we have jeopardized our economy, our quality of life, and our very safety. We are pleased, however, that Congress this year passed and the President signed the Moving Ahead for Progress in the 21st Century (MAP-21) legislation that reauthorized the nation’s surface transportation funding.

April 2010 ASCE papers

Media friendly explanatory videos, 2009

(ASCE = American Society of Civil Engineers)


Given Sandy (and the engineering papers ZH linked to outlining how $5-6 bil could have off-set a significant chunk of the damage costs), and a potential marriage of interests between; a) ASCE / ivory tower interest, b) Insurance Industy / hurting Construction industry, C) Government looking to employment data / downturn and D) Hawks looking to maintain competitiveness with China, there seems to be at least some chance of a "hail mary", $2.5 - 3 trillion stimulous package. Looking back on 9/11, I remember a similar vibe. 

I'm happy to be schooled in why this won't be appealing to Obama / Congress, but with the fiscal cliff, is there any reason not to double-down for a Krugman epic spending spree?


Disclaimer: I need to dig out MAP-21 first to take a look at the proposals. Those who need their frog-pills, now commence comparing it to Agenda-21...

Wed, 11/21/2012 - 14:37 | 3002734 pitz
pitz's picture

At least the Civil Engineers build shit.  The bankers just build pyramids of paper (or these days, their electronic equivalents!).

Wed, 11/21/2012 - 17:22 | 3003292 Aurora Ex Machina
Aurora Ex Machina's picture

Yes, that was the hidden dagger, in my little velvet glove.

If you're committed to "QE to infinity", why shove it into CEO's pockets, when you could be actually strengthening your internal economy? APPL has $100 bil in their hedge fund (close), do they really need more to ship off to Chinese Robots? If you're committed to a fiscal policy like that, don't pretend you're actually playing market Capitalism, just go for something that might actually benefit people.


(Oh, and, I'm sure everyone knows this already, but AMZN just spent ~$770 mil ish on Robots - after 10 years, AMZN might make some profit, and the turn to full automation now comes to America. Foxconn, now Amazon. Expect slaughter on the high-street come Monday, esp. if Black Friday turns into Walmart getting a taste of worker's ire)

Wed, 11/21/2012 - 21:04 | 3003690 brettd
brettd's picture

Alas, the government tells the civil engineers:

I want you to spend a trillion dollars and put those people right back in the flood/fault zone!


Wed, 11/21/2012 - 19:48 | 3003557 RockyRacoon
RockyRacoon's picture

That's not to mention the "military spending".   Without the wars we could have concreted over the entire continental US.   Not that that is a viable alternative -- Japan has been down that road already.   Your point is a cogent one in that, at least, there would be something to show for it other than fat bankers.

Wed, 11/21/2012 - 14:33 | 3002712 pitz
pitz's picture

Ummm a collapse in investment ultimately creates inflation (ie: no new production comes on-stream), which eventually drives much *higher* ROE/ROI/ROA.  The author of the article has it backwards.

Wed, 11/21/2012 - 17:53 | 3002849 Mitch Comestein
Mitch Comestein's picture

Thank goodness someone reported this issue.  I have been reading financials of numerous companies, including Best Buy.  They are pissing there money away on overpriced buybacks.  I can hardly believe it.  Every large company that is in trouble currently was buying their shares back within the last year it seems.  Think JC Penney to the tune of 832 Million in the fiscal year ending January 2012.  Now look at them.

Bravo TD and gang!

Wed, 11/21/2012 - 15:23 | 3002907 Clowns on Acid
Clowns on Acid's picture

A lot of people "blaming" the CEO's and corporrate "greed" here. Ridiculous.

Given the Fed's immoral Int'l ZIRP policy, CEO's have litle choice but to pursue a "borrow form the Fed at effectively zero, and buy back their expensive equity".

The invisible hand can only work when there is real interest rates, which truly reflect the demand/supply of money in socio-economic structures (like the US).

The CEO's are only doing what is in their "best interest", and their "best interest" is being dictated by the immoral Fed.

When the immorality is being encouraged by those at the top, it psreads like a virus throughout the system.

Doctor heal thyself !

Wed, 11/21/2012 - 18:19 | 3003404 walküre
walküre's picture

Are you serious?

How about those CEOs and other execs are putting the capital they put on the company's books to work for something that is tangible and increases their company's productivity and by extension increases economic activity?

How about sharing the benefits of your company's ability to raise cheap capital and increase compensation for the SINGLE MOST important component to any company's success (that's what every exec out there says frequently)?

The robber barons couldn't hold a candle to the slick and leechy corporate execs of today.

Wed, 11/21/2012 - 21:09 | 3003705 brettd
brettd's picture

So the CEO's supposed to capX to increase the production of things that aren't selling?

Good luck with that.

Wed, 11/21/2012 - 15:54 | 3003021 Nobody For President
Nobody For President's picture

For those that did not click on the 'fax machine' link, here is the key quote in the article by all of ZHer's favorite economist, the Nobel guy himself - Krugman:

* The growth of the Internet will slow drastically, as the flaw in "Metcalfe's law"--which states that the number of potential connections in a network is proportional to the square of the number of participants--becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's.


See? He really is a smart guy that knows how to fix our economy.


Wed, 11/21/2012 - 19:35 | 3003534 IridiumRebel
IridiumRebel's picture

What a fuckhead.

Wed, 11/21/2012 - 18:18 | 3003403 hawk nation
hawk nation's picture

Why not borrow if you believe inflation or hyperinflation is just down the road and the cost is almost zero percent

The public should also be doing this but the banks wont loan to the individual at these rates

Wed, 11/21/2012 - 18:25 | 3003415 walküre
walküre's picture

Are you daft? Excuse me. They don't loan to the public at near zero because they need the masses to stay impoverished and working their asses off to pay for the excesses at the top.

We are being exploited on every level. How does it feel knowing that you work for the King, the Queen and the royal court or you die.

Where is freedom in all of this? Where is liberty in all of this? NJENTE. It doesn't exist. It is a lie. All of it.

Why isn't the revolution starting? All ingredients to mass civil disobedience and a forceful takedown of the existing power structures are right there.

Wed, 11/21/2012 - 21:17 | 3003715 hawk nation
hawk nation's picture

Im in agreement with you and that was the intent of my post

Wed, 11/21/2012 - 18:38 | 3003433 PersonalRespons...
PersonalResponsibility's picture

TD(s), being parenthetical is fine for making small points but... damn!

"(where, sadly, government investment IRRs just happen to be negative - a fact that most won't understand until it is too late, especially not self-anointed economic wisemen whose only solution to everything is "do more of the same" yet who thought the utility of the Internet would be eclipsed by that of the fax machine)"

It's like a giant fuck shit stack similar to the world's giant ponzi scheme, fiat currency.

For fun if you wish:

-song by Reggie Watts, video by a talented soul


Wed, 11/21/2012 - 19:29 | 3003528 IridiumRebel
IridiumRebel's picture take some fuck and some shit and some fuck......

Wed, 11/21/2012 - 19:01 | 3003484 ekm
ekm's picture

I've been telling this to you guys over and over and over.


It's called: FORCED BUYING.

Wed, 11/21/2012 - 19:29 | 3003526 kill switch
kill switch's picture

OT This is not a democracy......

Fri, 11/23/2012 - 18:51 | 3007488 bankerbackbacon
bankerbackbacon's picture

Lets get our best scientitians on it.

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