Whatever cannot go on forever must end, including profit-taking. The 2017 corporate tax cuts dropped a cash windfall into the hands of American companies. It was ostensibly for repatriating cash to stimulate investment in long term growth. Instead, many companies opted to plug billions into share buybacks and executive pay packages instead of re-investment. The concern, writes Emily Stewart, is that companies “are rewarding stockholders instead of investing in their workers, research and development, new facilities, or other more productive arenas.”[i] Wall Street likes it because it inflates the price of shares. It worked in the historic profit-taking stretch which saw little volatility with optimistic investors, banks and consumers loading up on risk. It all looked so rosy. Boeing is a case study on how this can all go south in a hurry. A triple whammy of the 737 fiasco, trade war, and now the ripple effects of Seattle as virus epicenter. Who could have expected the company to husband its cash for a rainy day no one ever expected to come? We finance our First World lifestyle largely through debt. If one thing, Coronavirus is exposing how vulnerable our borrowed decadence is…
[i] Emily Stewart, “Stock Buybacks, Explained”, Vox, August 5, 2018. https://www.vox.com/2018/8/2/17639762/stock-buybacks-tax-cuts-trump-republicans (accessed March 12, 2019).
From Under The Rubble 