Juggling Dynamite

The tragedy in Paris is another opportunity for reflection on how the world has arrived where we are today.  ISIS and many other terrorist groups would not have their present power and military equipment if the west had not pumped billions into the middle east in a self-destructive obsession with oil as its primary fuel over the past century.

Emergency climate talks would not be needed in Paris or anywhere else today, if the west had embraced and developed the many clean, sustainable, renewable energy resources available on planet earth.

Thankfully many people are finally seeing the light. Better late than never.  Smart initiatives are underway all over the world and conscientious consumers are looking for ways to change their consumption behaviors.  We humans can be so brilliant when we choose to be… Yes we can change. Spread the word.

Danielle was guest today on Talk Digital Network with Jim Goddard, talking about recent developments in the world economy and markets.  You can listen to an audio link of the segment here.

Amid all the media hyperbole around record share buybacks the past few years, very few people seem to grasp the net effect.  A new must read report “Are Buybacks an Oasis or a Mirage” lays out the math for those wanting to see.

The bottom line:  the dominant motivation of buybacks has been to enable executive cash outs at the expense of the company’s health, its employees, creditors and shareholders.  To wit:

When management redeems stock options, new shares are issued to them, diluting other shareholders. A buyback is then announced that roughly matches the size of the option redemption. This facilitates management’s resale of the new stock they were issued in the option redemption. Buyback? Not really! Management compensation? Yes.

Because the stock options a company issues its management dilute the value of its stockholders’ shares, companies often repurchase their stock to offset this dilutive effect. The net impact is a transfer to management of more of a company’s cash flow than is reported as compensation on the income statement. Irrespective of the intent of the company to reduce the dilutive impact of its options-based stock issuance with buybacks, the reality is that the dilution is not always totally offset…often a company’s repurchase of its stock was accompanied by a net increase in debt.

…The reality is that publicly traded companies in the United States are issuing far more new securities than they are buying back, diluting existing investors’ ownership and reducing growth in earnings and dividends per share well below the growth of their reported profits. There is, in fact, no net transfer of cash from the coffers of U.S. corporations to the wallets of U.S. equity investors. The buyback oasis evaporates as we approach it. For investors in the aggregate U.S. public equity market, buybacks are simply a mirage.

Investors have not been complaining about share buybacks because as corporate revenues have weakened, buybacks and dividend payments helped to placate shareholders with increased earnings per share and rising share prices. Once shares begin to fall however, holders soon discover that the appearance of gain is fleeting. In reality corporate executives have ‘cashed out’ mind-boggling sums for themselves, while leaving shareholders and creditors holding risky paper in a much degraded enterprise.