The above is an old tweet but seems as relevant today as ever. Here is what the corporate world looks like:
1/ huge cashpiles on corporate balance sheets
2/ record share buybacks.
3/ underinvestment in new projects.
Why does this matter?
Well …when you get profits there are three things you can do with them
1/ Issue Dividends — give profits to shareholders.
2/ Buyback Stock — buy your own stock to increase EPS.
3/ Reinvest into productivity gains (wages, new technnology, new opportunities).
The last decade has seen more of the first 2 (ie finance games) and less of the last one (investment in future productivity).
The thing with this is it doesn’t matter. Until it does, especially if you believe in fundamentals and the cyclical nature of business. Such short term financial engineering is great for the stock market but doesn’t bolster economic growth.
Fascinated to hear your thoughts.