Showing posts with label Corporate CAPEX. Show all posts
Showing posts with label Corporate CAPEX. Show all posts

Monday, March 4, 2019

4/3/19: S&P 500 Share Price Support Scams are a Raging Trend


Having posted a record-breaking USD939 billion of shares repurchases in 2018, Corporate America is on track to set a new record-wrecking year of buybacks in 2019. per latest data from JPM (via @zerohedge), January-February 2019 saw USD187 billion worth of shares repurchases in S&P 500 index constituent companies.


This is a notch higher than in 2018 and almost 90 percent above 2017 period.

Sunday, January 8, 2017

8/1/17: Corporate Cash: Organic Capex Still Sluggish


In 2016, based on data from Goldman Sachs, 26 percent of aggregate S&P500 company cash went to fund shares buybacks, matching 2013 ratio of buyback to cash for the highest in 9 years. At the same time, Dividends rose to 19 percent of cash compared to 18 percent in 2015, and M&As contracted to 14 percent of cash from 18 percent in 2015.

As the result, CAPEX and R&D spending by S&P500 companies managed to rise to 41 percent of cash in 2016 from 40 percent in 2015, making this the third (after 2015) lowest CAPEX & R&D spend year (as a share of total cash) since 1999.

CAPEX & R&D represent organic investments by the firms and are jobs additive. M&As and Buybacks are forms of financial allocations and are not supportive of jobs creation. In 2016, based on the data, the split between financial and organic investment was 40:41, which is slightly better than in 2015 (42:40), but still represents the fourth worst year on record (since 1999).

Charts below illustrate:




Controlling for volatility, on trend, share of cash diverted to organic investment continues to trend down and is forecast to fall below 40 percent in 2017. Meanwhile, share of cash going to financial allocations is trending up and is forecast to reach 43 percent of total cash in 2017.

And, financial markets are once again starting to reward buybacks relative to organic growth:



All in, the trends suggest that CAPEX improvements are unlikely to materialise any time soon and the secular decline in investment, consistent with supply and demand sides of secular stagnation thesis is here to stay. Which is bad news for the  S&P500 constituents - lack of organic investment spells lack of value added growth and market potential in the long run. Glut of M&As and Buybacks spells rising risks from misallocation of cash (M&As) and superficial priming up of equity valuations (buybacks-sustained asset bubble). Neither are good.