Tag Archives: Corporate Debt

Top 10 Share-Buyback Queens – Big Tech except Intel, Big Banks except Wells Fargo, Buffett – Incinerate Most Cash Ever in Q2. The Rest Lags, by Wolf Richter

Posted on September 26, 2021 | Leave a comment

Buffet is probably trustworthy buying back Berkshire stock. The company has a mountain of cash so it’s not borrowing. Buffet is an excellent judge of value, and presumably that extends to the value of his own company. The rest of the buyback queens, make sure you check under the hood, especially if the company is borrowing money for its buybacks. From Wolf Richter at wolfstreet.com:

Funded by Debt: Since 2012, share buybacks totaled $5.5 trillion, corporate debt soared by $4.7 trillion.

They’re back big time. Three of the big four banks are back – while Wells Fargo keeps getting slapped on the wrist – after all four were out of it last year due to pandemic-rated financial restrictions. Intel fell out of it. But the rest of Big Tech is in, and Apple bigger than ever. Warren Buffett’s Berkshire Hathaway, after rightfully dissing share buybacks for years, has become one of the largest share buyback queens. And Charter Communications has jumped into it massively.

The top 10 companies – ranked by their cumulative buybacks over the past five years – bought back more of their shares than ever in Q2: $85 billion, according to S&P Dow Jones Indices this week, accounting for 43% of the total share buybacks by all S&P 500 companies. Since 2014, these 10 companies bought back $1.13 trillion of their own shares.

The two surges in the chart below – first after the corporate tax cuts in 2017, and second after Q2 2020 – quadrupled the quarterly rate of share buybacks for these 10 companies from around $20 billion a quarter in the four years through 2017, to $85 billion in Q2 (data via YCharts.com):

Continue reading→

Leave a comment

Posted in Banking, Business, Debt

Tagged ,

The global debt problem, by Alasdair Macleod

Posted on April 9, 2021 | Leave a comment

If you’re only going to read two articles from SLL tonight, read this one and the next one. There’s only one inevitable “solution” to the global debt problem: a financial system crash and burn. From Alasdair Macleod at goldmoney.com:

It has been recently estimated that global debts stand at $284 trillion equivalent, representing 355% of global GDP. Estimates such as these must be treated with caution, and they probably underestimate financial sector debt. Furthermore, no allowance in these figures is made for OTC derivatives, which according to the Bank for International Settlements have a gross value of $15.48 quadrillion(!), netting out at $609 trillion.

This article comments on the different debt sectors: government, finance, non-financial corporate and consumer debt. It finds the dangers of excessive corporate debt have had the least attention, and that systemic risk in commercial banks is grossly underestimated.

The rapid growth of emerging market corporate debt is a recipe for a repeat of the Asian crisis in the late-1990s.

Ultimately, the whole debt burden will fall on government shoulders in their threefold attempt to protect the banks, stop a recession and to continue puffing up a wealth effect by inflating increasing amounts of currency into financial markets.

The trigger to end the debt crisis is almost certainly rising bond yields.

Introduction

Times of monetary expansion generate a shift in wealth from bank depositors to borrowers. Given that this year is the fortieth anniversary of the Nixon shock, when the world’s currencies finally came out as fiat, it is hardly surprising that each successive crisis led to the easier path of increasing debt instead of letting failing businesses and banks go to the wall. Kicking the can down the road has been the way to deal with every economic or financial blip. After all, it is argued, inflation reduces debt obligations over time.

Maybe, but it increases the net present value of future obligations to the ultimate destruction of welfare-driven states. This is why, if for no other reason, kicking cans down the road just ends up at some point with a pile of cans that can no longer be kicked. But politicians aware of mounting obligations and still doing the can-kicking believe that will be their successors’ problem, and you never know, something might turn up. After all, optimists argue, we survived higher levels of debt following the Second World War.

Continue reading→

Leave a comment

Posted in Banking, Business, Currencies, Debt, Economy, Governments

Tagged , , ,

David Stockman on the Economy’s Role in The Upcoming Presidential Election

Posted on September 26, 2020 | Leave a comment

Will the economy continue to float on a sea of debt through the election? Probably. From David Stockman at internationalman.com:

Presidential Election

International Man: Bill Clinton’s infamous phrase during the 1992 presidential election was “It’s the economy, stupid.” How important of a role do you think the economy and a continued rally in the stock market will play in the outcome of the presidential election?

David Stockman: Well, in the befuddled mind of Donald Trump, probably a considerable role as manifest in his campaign oratory. And since there are less than 50 days left, he might get away with his groundless boasting. That is, we seriously doubt that the great reckoning will commence before November 3, meaning that he will keep peddling the “but for COVID” canard, claiming that, before that, he single-handedly created the Greatest Economy Ever.

Actually, it’s the greatest BS story ever told. It rests on the utterly misleading circumstance that the Donald entered office in month #90 of what became the longest business cycle expansion in history (at 128 months in February).

Consequently, his “record” was artificially flattered by the low U-3 unemployment rates (3.5%) that naturally occur during the last 38 months of the cycle as the inventory of unused labor is finally exhausted. Of course, that’s also exactly what occurred during the final months of the 118-month expansion of the 1990s and the 106-month expansion of the 1960s, when Democrats happened to be incumbent in the Oval Office.

But when measured by something relevant, such as the average real GDP growth rate during his tenure, it turns out that the Donald’s cherished “score” is the very worst among all the presidential terms since 1948.

Continue reading →

Leave a comment

Posted in Banking, Business, Debt, Economics, Economy, Government

Tagged , , ,

Wow, That Was Fast: Debt Out the Wazoo, by Wolf Richter

Posted on June 16, 2020 | 1 comment

Just in case you’re keeping score, here’s the latest on debt. From Wolf Richter at wolfstreet.com:

US National Debt Spiked by $1 trillion in 5 weeks to $26 trillion. Fed monetized 65%. Business debts spike to high heaven.

Trillions are now whooshing by at a breath-taking pace. The US gross national debt – the total of all Treasury securities outstanding – jumped by $1 trillion over the past five weeks, from May 4 through June 8, and by $2.5 trillion for the 11 weeks since March 23.

The total US national debt outstanding has reached $26 trillion, according to the Treasury Department. I’ve been fretting about this debt on my site since 2011. In recent years, I innocently added a green upward arrow with “Debt out the wazoo” to my gross-national-debt charts, unaware that this tongue-in-cheek label would turn into a factual, data-based technical term:

And think about this: The huge mountain of debt that took decades to grow to this gargantuan size has exploded by another 10% in just 11 weeks.

Continue reading →

1 Comment

Posted in Banking, Business, Debt, Economy, Government

Tagged , ,

Over-Leveraged Zombie Companies Threaten Economic Recovery, by Peter Schiff

Posted on May 30, 2020 | Leave a comment

Nothing destroys the resilience of either a business or an economy like debt. There is no way, given present global debt levels, that the economy is going to bounce back from the hit administered by the coronavirus response. From Peter Schiff at schiffgold.com:

There seems to be mounting optimism that the US economy will rebound relatively quickly as states begin opening up and there is progress toward a coronavirus vaccine. But the optimism ignores deep problems in the US economy that existed before the pandemic  – chief among them staggering levels of debt and the proliferation of zombie companies.

In the last couple of years, corporate debt has blown through the roof. So much so that the Federal Reserve issued warnings about the increasing levels of corporate indebtedness late last year.

Borrowing by businesses is historically high relative to gross domestic product (GDP), with the most rapid increases in debt concentrated among the riskiest firms amid weak credit standards.”

The government shutdowns in response to COVID-19 have only exacerbated the problem. The Federal Reserve’s prescription has been to encourage even more borrowing. Companies have obliged. As Bloomberg recently reported, “many of the companies hardest hit by the coronavirus outbreak have priced billions of dollars of bonds and loans in recent weeks.”

Never mind that profits have been wiped out, and that their business operations aren’t viable right now or likely anytime soon. As long as they’re propped up by the Fed, investors are willing to lend.”

Continue reading→

Leave a comment

Posted in Business, Debt, Economy, Governments

Tagged ,

After Blowing $43 Bn on Share-Buybacks in 6 Years, Boeing Scrambles to Borrow $10 Bn, on Top of a $9.5 Bn Credit Line in Oct, to Fund its 737 MAX Fiasco, by Wolf Richter

Posted on January 21, 2020 | 1 comment

Boeing wouldn’t be in the fix it’s in if it had spent more money on plane design and less on share buybacks. From Wolf Richter at wolfstreet.com:

Having become a master of financial engineering instead of aircraft engineering.

The first thing to know about Boeing’s mad scramble to line up “$10 billion or more” in new funding via a loan from a consortium of banks, on top of the $9.5 billion credit-line it obtained in October last year – efforts to somehow get through its cash-flow nightmare caused by the 737 MAX fiasco – is that the company blew, wasted, and incinerated $43.4 billion to buy back its own shares since June 2013, having become a master of financial engineering instead of aircraft engineering.

If Boeing had focused on its business – such as designing a new plane instead of doctoring an ancient design to save money and time – and if it hadn’t blown $43 billion on share-buybacks but had invested this money in a new design, those two crashes wouldn’t have occurred, and it wouldn’t have to beg for cash now. The chart below shows the cumulative share-buybacks in billions of dollars since Q1 2009. In Q2 2019, it belatedly halted the share buybacks (share buyback data from YCharts):

Continue reading →

1 Comment

Posted in Business, Debt, Financial markets

Tagged , ,

Why Stock Buybacks Are Dangerous for the Economy, by William Lazonick, Mustafa Erdem Sakinç and Matt Hopkins

Posted on January 8, 2020 | Leave a comment

Corporate stock buybacks are management enrichment devices that are nothing more than speculation, often with borrowed money. What could go wrong? From  William Lazonick, Mustafa Erdem Sakinç and Matt Hopkins at hbr.org:

HBR Staff/Daniel Sambraus/Getty Images

Even as the United States continues to experience its longest economic expansion since World War II, concern is growing that soaring corporate debt will make the economy susceptible to a contraction that could get out of control. The root cause of this concern is the trillions of dollars that major U.S. corporations have spent on open-market repurchases — aka “stock buybacks” — since the financial crisis a decade ago. In 2018 alone, with corporate profits bolstered by the Tax Cuts and Jobs Act of 2017, companies in the S&P 500 Index did a combined $806 billion in buybacks, about $200 billion more than the previous record set in 2007. The $370 billion in repurchases which these companies did in the first half of 2019 is on pace for total annual buybacks that are second only to 2018. When companies do these buybacks, they deprive themselves of the liquidity that might help them cope when sales and profits decline in an economic downturn.

Making matters worse, the proportion of buybacks funded by corporate bonds reached as high as 30% in both 2016 and 2017, according to JPMorgan Chase. The International Monetary Fund’s Global Financial Stability Report, issued in October, highlights “debt-funded payouts” as a form of financial risk-taking by U.S. companies that “can considerably weaken a firm’s credit quality.”

Continue reading →

Leave a comment

Posted in Banking, Business, Debt, Financial markets

Tagged ,

Corporate Debt Time Bomb, by Claudio Grass

Posted on December 27, 2019 | Leave a comment

Rising interest rates and rising credit downgrades pose twin threats to the corporate debt market. From Claudio Grass at lewrockwell.com:

While I have reportedly highlighted the many risks of the current monetary policy direction and the multiple distortions that it has created in the markets, in the economy, and even in society, one of the most pressing dangers of the unnaturally low rates and cheap money is the staggering accumulation of debt. Nowhere is this more obvious than in the ballooning corporate debt, especially in the US. It has been growing so rapidly and for so long, that many investors and analysts eventually got used to it, accepted it as a fact of life, and became desensitized to the immense risk it poses to the economy at large. Now, another crucial milestone has been reached and a red line has been crossed, that will hopefully force market participants to finally heed the many calls for caution and the clear warnings that have been falling on deaf ears for years.

Continue reading →

Leave a comment

Posted in Banking, Business, Debt, Economy, Financial markets, Investing

Tagged , ,

47 Percent Of GDP – This Is Definitely The Scariest Corporate Debt Bubble In U.S. History, by Michael Snyder

Posted on December 3, 2019 | Leave a comment

We are living through the greatest debt bubble in the history of the planet. Watch out below when it finally pops. From Michael Snyder at themostimportantnews.com:

We are facing a corporate debt bomb that is far, far greater than what we faced in 2008, and we are being warned that this “unexploded bomb” will “amplify everything” once the financial system starts melting down. Thanks to exceedingly low interest rates, over the last decade U.S. corporations have been able to go on the greatest corporate debt binge in history. It has been a tremendous “boom”, but it has also set the stage for a tremendous “bust”. Large corporations all over the country are now really struggling to deal with their colossal debt burdens, and defaults on the riskiest class of corporate debt are on pace to hit their highest level since 2008. Everyone can see that a major corporate debt disaster is looming, but nobody seems to know how to stop it.

At this point, companies listed on our stock exchanges have accumulated a total of almost 10 trillion dollars of debt. That is equivalent to approximately 47 percent of U.S. GDP…

A decade of historically low interest rates has allowed companies to sell record amounts of bonds to investors, sending total U.S. corporate debt to nearly $10 trillion, or a record 47% of the overall economy.

In recent weeks, the Federal Reserve, the International Monetary Fund and major institutional investors such as BlackRock and American Funds all have sounded the alarm about the mounting corporate obligations.

Continue reading →

Leave a comment

Posted in Banking, Debt, Economy, Government, Uncategorized

Tagged

Fracking Blows Up Investors Again: Phase 2 of the Great American Shale Oil & Gas Bust, by Wolf Richter

Posted on November 24, 2019 | 1 comment

Fracking may be the greatest thing to ever happen to US oil and gas production, but it’s having a hard time paying for itself, especially when the cost of copious amounts of debt is thrown into the calculations. From Wolf Richter at wolfstreet.com:

Including billionaires who thought they’d picked the bottom in 2016.

In 2019 through third quarter, 32 oil and gas drillers have filed for bankruptcy, according to Haynes and Boone. Since the end of September, a gaggle of other oil and gas drillers have filed for bankruptcy, including last Monday, natural gas producer Approach Resources. This pushed the total number of bankruptcy filings of oil and gas drillers since the beginning of 2015 to over 200. Other drillers, such as Chesapeake Energy, are jostling for position at the filing counter.

Chesapeake has been burning cash ever since it started fracking. To feed its cash-burn machine, it has borrowed large amounts and has been buckling under its debt for years, selling assets to raise cash and keep drilling for another day. But its debt is still nearly $10 billion. Its shares [CHK] closed on Friday at 59 cents.

On November 5, in an SEC filing, it warned of its own demise unless oil and gas prices surge into the sky asap: “If continued depressed prices persist, combined with the scheduled reductions in the leverage ratio covenant, our ability to comply with the leverage ratio covenant during the next 12 months will be adversely affected which raises substantial doubt about our ability to continue as a going concern.”

Continue reading →

1 Comment

Posted in Business, Debt, Economy, Energy, Financial markets

Tagged , , , ,