US Political Discussion: Biden/Harris Edition (Rules in OP)

Riff the Road Dog

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I‘m not following you.

Capitalism began life in Europe, roughly following the French Revolution, and was first put into writing by Scottish economist Adam Smith in the mid to late 1700s. But even that wasn’t a revolution; it built upon existing systems.

Can you elaborate on this (either here or in a different thread)?
I didn't say capitalism was invented in the US, or didn't mean to, anyway.The tenets of the system may have originated elsewhere but it was adopted and flourished in America in a very particular way. Hell, I don't even know if it was done consciously. American capitalism is, in my opinion, the most highly evolved form we've got currently, and stronger than anything that's come before. You have to look at how its tenets were uniquely suited to the development and evolution of America and how it grew here.
 

Mathemagician

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Tangental, but while as a bond analyst I don't generally like it when companies engage heavily in buybacks (especially debt fueled ones), I guess when push comes to shove I don't oppose them, at least in theory.

Companies can issue as much equity as they want, both in an initial public offering, but in subsequent equity offerings. It's not widely done, but it certainly can be and happens often enough. There are also only limited controls on a company's ability to issue debt (whatever their shelf registration limit is, but that can be re-filed easily enough so in practice it's whatever the market will bear), and regardless of what you happen to believe the exact right ratio is, using debt to leverage equity implies that there's some sort of a "target" leverage ratio a company wants to manage itself to. Meanwhile, no one complains if a company retires debt. All together - saying companies can issue equity but not redeem it, can only adjust its target balance sheet by issuing more debt if the company believes its equity-heavy, and there are no restrictions on the abiluty of a company to de-leverage by buying back debt, collectively means you're treating equity as a much more restricted asset class than debt, which to me doesn't make much sense.

Corporate finance dictates you engage in share buybacks for three basic (and, honestly, related) reasons - when you think your share price is undervalued, when you want to increase leverage modestly without issuing debt, or when your investment opportunities as a business have a lower expected ROI than your stock. The final one is probably the one worth thinking about - in the long run, buybacks of a stock that management believes is undervalued and has a higher expected ROI than investing in the core business should cause the stock ROI and the corporate investment ROI to converge. And, if the problem is the corporate investment ROI just isn't very high, then one of two things happen - either the company doesn't buy back stock and instead issues debt to up leverage and increase the ROI (at the cost of increasing risk), or the company's low growth opportunities mean it's ripe for disruption from a competitor who can generate higher investment returns in the same space.

Doubt you're writing this saying you're opposed to buybacks, exactly, but in theory I don't have much of a problem with them, it's just in practice if a company wants to increase leverage by issuing debt to buy back equities, that's all well and good, but means they're probably not a great investment as a bondholder since you can start running downgrade risk.

Oh I understand the “textbook/math” reasoning. And academically I admit it’s value as a pricing mechanism.

However in reality it should be heavily regulated due the conflict of interest between the two parties. Management who is compensated in stocks and thus has incentive to artificially inflate share price by reducing the available number of shares are the ones who decide whether the company is over or undervalued. And an easy example is to look at the dogshit airline industry. Stock buybacks for decades while inflating revenue sources in the short term by just cutting corners everywhere, cramming extra seats on flights, charging for everything, etc.

Big established firms annually decide they are undervalued and file to buy back shares. Meanwhile equity analysts would not agree that the % of “undervalued companies” lines up with the amount of companies actually filing to buy back shares.

If they want to increase share price they should have to increase the value of the company. Otherwise share buybacks are incentivized because mgmt/shareholders see share prices move upwards and thus assume mgmt is doing a good job.

Having high cash piles and doing a share buyback mathematically equates to increasing the dividend. I get that.

But a cash dividend is a permanent promise. It holds the company to that new standard even if it comes with the dividend income tax for investors.

Share buybacks are used every chance they get without an inherent promise that the firm will be able to maintain that level of profitability.

I’d just rather see firms unable or restricted to buy back shares and facing higher corporate income taxes with lower individual tax rates. IE a % of the share buyback has to be matched with a permanent dividend increase. And use those regulations to tilt large companies towards better pay versus rewarding financial engineering.

If they want ti manage their ratios and think they have too much equity then issue more debt. That again forces mgmt to think longer term.
 
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Drew

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Oh, I agree. I believe capitalism grew from original repressed conflict that is unique to American society.
Wealth of Nations was published in 1776 by a Brit, and was based on an earlier work dating back to the 1750s. It was based on Adam Smith's firsthand experience with the Industrial Revolution in the UK. :lol:
 

Drew

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However in reality it should be heavily regulated due the conflict of interest between the two parties. Management who is compensated in stocks and thus has incentive to artificially inflate share price by reducing the available number of shares are the ones who decide whether the company is over or undervalued. And an easy example is to look at the dogshit airline industry. Stock buybacks for decades while inflating revenue sources in the short term by just cutting corners everywhere, cramming extra seats on flights, charging for everything, etc.

Big established firms annually decide they are undervalued and file to buy back shares. Meanwhile equity analysts would not agree that the % of “undervalued companies” lines up with the amount of companies actually filing to buy back shares.

If they want to increase share price they should have to increase the value of the company. Otherwise share buybacks are incentivized because mgmt/shareholders see share prices move upwards and thus assume mgmt is doing a good job.
TBH, this is a corporate governance problem. Executive incentive programs are set by the board of directors, not management. Stock buyback programs also have to be approved by the board of directors. Board members usually have stock ownership themselves, but not performance-based stock grant plans. A suitably independent board does not have an incentive to closely tie executive comp to the stock price, and then approve buyback plans large enough to potentially impact the stock price. A board that isn't suitably independent, well, you've got bigger fish to fry than this. But the gist is management reports to a (almost always) independent board, that board is elected by stockholders, and this helps align management decisions with the longer-term interest of stockholders. If a board sees management pursuing policies that they think will increase stock price in the short run to hit comp targets in ways they don't believe are beneficual in the long run, then those comp plans, as well as potentially the management slate, will change in a hurry.

There's also no real reason a dividend can't be cut, aside from the fact equity analysts really don't like this and tend to downgrade stocks who do, simply because equity valuation models tend to either assume a steady dividend or one increasing a a steady rate.

From a bondholder standpoint, I do have a preference to firms who engage in return of shareholder capital leaning a bit heavier on buybacks than dividend increases, provided management has a track record of aligning them to the business cycle (increase when times are good, slow or halt them when times are bad) simply because - while yes, you can cut a dividend - it gives management a lot more flexibility in ways to retain cash in business contraction. The risk of course is that a change in management or management philosophy could change that in a hurry - look at Oracle's series of downgrades, for example, when after the Tax Cut and Jobs Act's repatriation of overseas capital, they basically blew through their massive cash reserves in a span of a few years, going from AA- to BBB in a span of about three years.
 

Riff the Road Dog

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Wealth of Nations was published in 1776 by a Brit, and was based on an earlier work dating back to the 1750s. It was based on Adam Smith's firsthand experience with the Industrial Revolution in the UK. :lol:
Again, as I said already, I didn't mean to say it was invented in America. I give up. :shrug:
 
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Xaios

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Holy hell. Whatever dirt they had to authorize an FBI raid on the home of the former president of the United States must be absolutely rock solid. No one would stake their careers on that if it wasn't absolutely iron clad, unless they knew exactly what they were looking for and exactly where to find it.
 

spudmunkey

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The funniest part for me is that the FBI raided a former President's home and we're not exactly sure which crime it's for
All we know is that Trump is surely furious at the frail, senile dipshit who appointed the current head of the FBI.

*hint: it was Trump.
 

nightflameauto

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Between this and Alex Jones' lawyer "accidentally" releasing his cell records, holy fuck. This is a good few days for those of us still attempting to hold on by the skin of our teeth to that little thing called sanity that so few of us seem to care about anymore.

Wonder how many years it'll be before that FBI raid turns into something public?
 

RevDrucifer

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Come on, man. Something will come of it.

Lots more firings once Trump is re-elected in 2024!

I wish I was joking.

That’d happen whether he got raided or not. Now with a flavor of “it’s personal” if he got re-elected.

And I don’t think I’ve ever had the word “ex-pat” flash through my head as quickly as I did just now thinking about him getting re-elected.
 


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