By now, there should be no doubt about who to thank for the record highs US stocks have put in this year. Investors should direct their appreciation first to the FOMC and second to corporate management teams, who stepped in to provide the all important “flow” once the Fed began to scale back its asset purchases.
Of course the Fed has been a powerful enabler when it comes to corporate buybacks. Ultra low rates have sent investors searching far and wide for yield, which in turn makes corporate credit an attractive option in a world where risk free assets often yield an inflation-adjusted zero or worse, have a negative carry. The strong demand for corporate issuance coupled with investors’ Fed-induced “beggars can’t be choosers” mentality means companies have been able to issue debt at rock-bottom rates.
The proceeds from debt sales have been funneled into buybacks and dividends as myopic (not to mention price insensitive) corporate management teams have focused squarely on artificially boosting the bottom line and of course, on boosting their own equity-linked compensation.
We’ve recounted this narrative ad nauseam this year and we’ve also gone to great lengths to explain how this dynamic serves to undermine top line growth by curtailing capex and thus ensures that if a real, demand-driven recovery ever does actually materialize, companies will be ill-prepared to capitalize on it.
But again, that’s just fine for corporate management teams because it’s all about instant gratification these days and if you needed further proof that US equity markets have become the preferred channel for transferring debt sale proceeds directly into the pockets of top management, Bloomberg has all the evidence you need. Here’s more:
Buybacks and dividends are rising to records in the U.S., and for many chief executives, that means a
Originally appeared at: http://davidstockmanscontracorner.com/money-printers-windfall-ceos-getting-rich-buying-back-stock/
Money Printers’ Windfall—-CEOs Getting Rich Buying Back Stock is a story from: BitcoinWarrior.net