Sorry Permabulls: 2014 Capex Forecast To Grow At Slowest Pace In Four Years

Tyler Durden's picture

Nearly two years ago, before the topic of (the great and constantly missing) Capex became a mainstream media mainstay, we said that as long as the Fed was actively engaged in manipulating the capital markets - and this was before the Fed launched its endless QEternity - the bulk of corporate cash would go not into investing for growth, i.e., capital spending and/or hiring, but dividends and (levered) stock buybacks. Nearly $1 trillion in stock buybacks later, and zero growth Capex, we were proven right, much to the chagrin of permabulls who said the capex spending spree is just around the corner again... and again... and again. The same permas (some of them of the reformed variety such as Rosenberg) swore up and down that 2014 is the year that Capex would finally appear: after all assets were record old (the same way they were in 2012).

Of course, if this were to happen, it would promptly refute our fundamental thesis that the Fed's presence in the market results in the terminal misallocation of efficient corporate capital. We were not concerned. We are even less concerned now having just read an FT piece forecasting that "capital spending by US companies is expected to grow this year at its slowest pace for four years, in a sign of corporate caution over the outlook for global demand." And like that, dear permabuls, the key pillar beneath all "corporate growth" thesis was yanked. Again. Fear not. There is always 2015. Or 2016. You get it.

Here are some of more notable permawrong permabulls opining,:

Mark Zandi of Moody’s Analytics said: “All the preconditions for much stronger business investment are in place.”


Doug Handler of IHS Global Insight said he expected growth in spending on plant and equipment to pick up from 3 per cent last year to 7 per cent this year.


However, he added: “The extent of the rebound may not be as strong this time as at the same point in the cycle in previous recoveries.”

Actually, no. The extent of the rebound will be limited by the hundreds of billions companies decide to spend on buybacks instead of investing in their future, thanks to such "activists" as Carl Icahn, who demands that companies lever to the hilt and use the proceeds to make him richer.

As for what to expect, here it is:

Total capital expenditure by the non-financial companies in the S&P 500 index is forecast to rise by just 1.2 per cent in the 12 months to October, according to Factset, a market data company that compiles a consensus of analysts’ forecasts.


Strong corporate balance sheets, rising business confidence and signs of stronger growth in the US economy have encouraged hopes of an acceleration in capital spending by American companies.


Yet while some, including Microsoft, Ford Motor, and Phillips 66 plan increased capital spending, others including Chevron, Intel and General Motors have indicated they expect to spend about the same this year as in 2013.


In aggregate, analysts’ forecasts indicated the slowest growth in capital spending by the largest US companies since it declined in 2010, in the aftermath of the recession of 2007-09.

And the punchline:

Companies are cautious about investing in spite of relatively low debt burdens by the standards of the past decade.

Dead wrong: companies are investing gobs and gobs of cash (recall that net debt is now far higher than it was in 2008, or simply look at the recent IBM results) however instead of investing in themselves, they are investing in the P&L of their loud-mouthed activist shareholders who get a quick benefit now, only to leave the companies holding the debt, in the longer-run making it far more likely that the company - now saddled with far more leverage and heading into a recession - will eventually file for bankruptcy, and leave all employees out of a job.

And for all this, as we showed in April 2012, we have Ben Bernanke's centrally-planned abortion of a market to thank.

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ParkAveFlasher's picture

CAPEX SHMAPEX, show me the buybacks!

eclectic syncretist's picture

Most companies don't have money for CAPEX.  The shitty and lax non-GAAP reporting metrics make lying about earnings easy, and historically it's always been the case that companies lie more and more about their earnings until it just can't be done any further.  We may be approaching that point now.  As is always the case, the truth will not come out until after equities have crashed.

Sudden Debt's picture

yes... they barely have enough money to pay the CEO's salary which is double of what all employees combined make...

ParkAveFlasher's picture

There are serious discussion within the publically-traded household-brand consumer products firm that I work for regarding revaluing our inventory, not to per unit cost of goods sold, but to cost of destruction.  Why it was not like that before our IPO is anyone's guess - lmao.


ParkAveFlasher's picture

Do new servers deigned for HFT operations count for CAPEX? 

PAWNMAN's picture

That joke of a network CNBS clearly did not get the memo.

Spungo's picture

Less capital spending = more money to pay in dividends. Bullish!

Sudden Debt's picture


Rainman's picture

Makes sense....why waste all that hoarded fiat on capex when there are entire countries to be bought on the cheap.

NotApplicable's picture

And waste it would be, given there is NO sustainable demand, which would have to be based upon savings.

Please allow me to take a second to thank the charlatan who helped make it all possible with his patented "2% inflation target."


Raging Debate's picture

NotApplicable - Ahhh a man that understands our economic system has a lot less to do with Keynes and has Freidman's brand all over it. After all, Friedman was a fan of Pinochet. Peer to peer banking is indeed the way of the future.

The big money will buy into that too but they will have no need for manual adjustments, code can be built for disequalibrium as well as equalibrium, using the quantum computer to factor in septillions of variables instead of thousands.

Someone once joked here just use SIM City for an economic system. We laugh because its funny and since thats where its heading we laugh because its true. Of course within a few mere decades some group will find a way to cheat with that too. Perhaps by that time we'll be looking at other means to exist in energy form and have no need of conquest.

buzzsaw99's picture

"gimme my special divi" icunt approves of this message

Sudden Debt's picture

yep... McDonalds will not invent a new happymeal...
Wallmart won't go double it's stores...
Starbucks will only keep selling the same kinds of coffee...
Apple will not make copy 55 of their iPhone....

in short... life will become pretty boring....

Carl Popper's picture

And the only time a job opens up in that environment is when someone dies or retires. 

Kaiser Sousa's picture

just like i said...

they finally pushed Silver right to the $20 mark in the phony paper price market at the end of trading....hilariously fraudulent...

Carl Popper's picture

God please give me 15.


I promise to keep buying no matter how much further down it goes. 

Spungo's picture

How do you know silver didn't go down on its own? That graph has 1 steep decline but it also has 1 steep incline.

Dr. Engali's picture

Whoa thank goodness we finished off the lows today or this might be considered a sell off.

Carl Popper's picture

Minor trivia like capex won't stop a permabull

ejmoosa's picture

I've stated time and again that when the rate of profit growth falls below 7-8 % annually, companies begin right-sizing.


Been below that threshold since the fourth quarter of 2012.

shawnmike's picture

Meanwhile the controlled sell-off in US equities is just that, completely controlled, and ready for the late day ramp. All while they go mad for bonds. Whatever, don't think anyone's jumping from windows on Wall Street just yet

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