sell! sell! sell!

[tiznow]

Fresh blood at the fed actually making some degree of sense.. He'll get whipped into shape eventually..

-----------

[h=1]Fed's Kashkari Floats Breaking Up Big Banks to Avert Meltdown - Bloomberg Business[/h]The former U.S. Treasury official who led the 2008 bailout program for the nation’s biggest banks says in his new role at the Federal Reserve that Congress and regulators should consider breaking them up to protect the financial system from another crisis.
Federal Reserve Bank of Minneapolis President Neel Kashkari, speaking Tuesday in Washington, said his regional Fed bank will study ways to toughen U.S. banking laws to prevent another financial crisis.
Regulators should consider options including breaking up the nation’s largest financial institutions, loading them up with “so much capital that they virtually can’t fail” and taxing leverage to make the system safer, he said. Tougher oversight will require new legislation, he added.
QuickTake Too Big to Fail
“The biggest banks are still too big to fail and continue to pose a significant risk to our economy,” Kashkari, who managed the U.S. Treasury’s $700 billion Troubled Asset Relief Program for rescuing banks in the crisis, said in his remarks. It was his first public speech since joining the Fed on Jan. 1 as its newest policy maker.
While Kashkari’s position fits with populist sentiment that has driven the rise of presidential candidates including Democrat Bernie Sanders, it’s at odds with top Fed leaders including Chair Janet Yellen, who isn’t calling for dramatic steps such as breaking up large banks. Such changes would also face a steep uphill battle to adoption by the Republican majority in Congress, which wants to roll back parts of the Dodd-Frank financial law passed in 2010, rather than go further as Kashkari proposes.
Kashkari’s remarks drew praise from Sanders. “Wall Street cannot continue to be an island unto itself, gambling trillions in risky financial instruments, making huge profits, assured that, if their schemes fail, the taxpayers will be there to bail them out," the Vermont senator said in an e-mailed statement.
Kashkari, who took over at the Minneapolis Fed following a failed run for governor of California as a Republican in 2014, compared the risk posed by big banks with that of a nuclear power plant in explaining why the government would probably have to bail out banks again in the event of another systemic crisis.
[h=3]‘Astronomical’[/h]“The cost to society of letting a reactor melt down is astronomical,” said Kashkari, who was a Goldman Sachs Group Inc. banker before joining the Treasury during the administration of Republican President George W. Bush. “Given that cost, governments will do whatever they can to stabilize the reactor before they lose control.”
Kashkari, 42, said the Minneapolis Fed will hold a series of events and collect public and financial-industry input before making proposals by the end of this year on how to address the issue.
Kashkari, asked about the economy and monetary policy after the speech, stuck to the Fed’s January statement and said if the reality ends up like the outlook, the U.S. will be headed in a “better direction.” He will be a voting member of the interest-rate-setting Federal Open Market Committee in 2017. The Fed’s Board of Governors in Washington sets policy for bank supervision, which is implemented by the 12 regional Fed banks including Minneapolis.
In testimony before Congress last week, Yellen said regulations imposed since the financial crisis have had “very substantial payoffs in the form of a much more resilient and stronger, better capitalized, more liquid banking system.”
Fed spokesman Eric Kollig declined to comment on Kashkari’s initiative.
[h=2]Watch Next: Here's Why 'Too Big to Fail' Is Still a Problem[/h]Here's Why 'Too Big to Fail' Is Still a Problem
[h=3]Dallas, St. Louis[/h]Kashkari joins several other regional Fed presidents outside of the major U.S. banking centers who have made similar statements about too-big-to-fail policy. Former Dallas Fed President Richard Fisher proposed that big banks be “restructured into multiple business entities,” while St. Louis Fed chief James Bullard has backed limiting the size of individual U.S. banks to a proportion of gross domestic product.
Kansas City Fed President Esther George, a former bank regulator, said in a 2014 interview that she was “disappointed but I guess not surprised” that the problem of too-big-to-fail banks remained and called for “meaningful consequences” for banks that don’t submit adequate “living wills,” or plans to be resolved if they were to fail.
Kashkari said Tuesday that the financial industry has “lobbied hard to preserve its current structure and thrown up endless objections to fundamental change.” He rejected the argument that U.S. banks would be at a disadvantage to competitors in nations with looser regulations, because the U.S. “should do what is right for our economy.”

 

[tiznow]

Yeah ... Tizdoom will show up later with another Fed rant post.

fed/zirp obviously fed the shale boom .. Just facts

all that cheap credit had to flow somewhere.. Lot of it went to oil as that was the hot market at the time coming outta the last bust...

 

[PatsFan1283]

Market right back up. Huge last 4 days.

Gonna take awhile for this thing to play out. Especially with all the accommodations from central banks to keep it going.

 

[tiznow]

Looks like a squeeze to me.. Think at best we chop sideways a while longer like we have for 2 years now..

Gold retraced back to 1200 after the breakout stopped out at 1260 but starting to move up again.. Regardless if up
or down markets ...think gold will do just fine from here .. And next bull leg of secular bull in gold has begun..

 

[PatsFan1283]

The last squeeze from August took 6 months to retrace back to lows.

http://fortune.com/2016/02/15/driverless-cars-google-lyft/

Decent article on robo-cars.

 

[tiznow]

I think recession starts now and we'll bust 1850 to downside soon... Maybe not.. Who knows when rules change daily... Once fed starts to relax its rate rise rhetoric which it will maybe that fluffs it a while longer who knows...

got gold? Starting to beat the drums regarding war on cash.. Can't have people hoarding when rates go negative.. but I'm sure this is only about the criminals... Just convenient timing as world moves towards NIRP....

------------

It’s time to kill the $100 bill

Lawrence H. Summers, the Charles W. Eliot university professor at Harvard, is a former treasury secretary and director of the National Economic Council in the White House. He is writing occasional posts, to be featured on Wonkblog, about issues of national and international economics and policymaking.
Harvard's Mossavar Rahmani Center for Business and Government, which I am privileged to direct, has just issued an important paper by senior fellow Peter Sands and a group of student collaborators. The paper makes a compelling case for stopping the issuance of high denomination notes like the 500 euro note and $100 bill or even withdrawing them from circulation.
I remember that when the euro was being designed in the late 1990s, I argued with my European G7 colleagues that skirmishing over seigniorage by issuing a 500 euro note was highly irresponsible and mostly would be a boon to corruption and crime. Since the crime and corruption in significant part would happen outside European borders, I suggested that, to paraphrase John Connally, it was their currency, but would be everyone’s problem. And I made clear that in the context of an international agreement, the U.S. would consider policy regarding the $100 bill. But because the Germans were committed to having a high denomination note, the issue was never seriously debated in international forums.
The fact that — as Sands points out — in certain circles the 500 euro note is known as the “Bin Laden” confirms the arguments against it. Sands’ extensive analysis is totally convincing on the linkage between high denomination notes and crime. He is surely right that illicit activities are facilitated when a million dollars weighs 2.2 pounds as with the 500 euro note rather than more than 50 pounds as would be the case if the $20 bill was the high denomination note. And he is equally correct in arguing that technology is obviating whatever need there may ever have been for high denomination notes in legal commerce.
What should happen next? I’d guess the idea of removing existing notes is a step too far. But a moratorium on printing new high denomination notes would make the world a better place. In terms of unilateral steps, the most important actor by far is the European Union. The €500 is almost six times as valuable as the $100. Some actors in Europe, notably the European Commission, have shown sympathy for the idea and European Central Bank chief Mario Draghi has shown interest as well. If Europe moved, pressure could likely be brought on others, notably Switzerland.
I confess to not being surprised that resistance within the ECB is coming out of Luxembourg, with its long and unsavory tradition of giving comfort to tax evaders, money launderers, and other proponents of bank secrecy and where 20 times as much cash is printed, relative to gross domestic, compared to other European countries.
These are difficult times in Europe with the refugee crisis, economic weakness, security issues and the rise of populist movements. There are real limits on what it can do to address global problems. But here is a step that will represent a global contribution with only the tiniest impact on legitimate commerce or on government budgets. It may not be a free lunch, but it is a very cheap lunch.
Even better than unilateral measures in Europe would be a global agreement to stop issuing notes worth more than say $50 or $100. Such an agreement would be as significant as anything else the G7 or G20 has done in years. China, which is hosting the next G-20 in September, has made attacking corruption a central part of its economic and political strategy. More generally, at a time when such a demonstration is very much needed, a global agreement to stop issuing high denomination notes would also show that the global financial groupings can stand up against “big money” and for the interests of ordinary citizens.

 

[mickj]

Looks like a squeeze to me.. Think at best we chop sideways a while longer like we have for 2 years now..

Gold retraced back to 1200 after the breakout stopped out at 1260 but starting to move up again.. Regardless if up
or down markets ...think gold will do just fine from here .. And next bull leg of secular bull in gold has begun..

back to $1900?

 

[tiznow]

I expect new highs in gold so long as global march towards NIRP continues.. Long term gold bull will continue until fiscal sanity returns.. That day nowhere in sight..

Beaten down miners showing this rally has legs as on the good days they sky while on the pullback days they hold up well.. Gold marching up again after quick pullback/retest of breakout at 1200... market squeeze running on fumes too.. Market not so sure where we going maybe global NIRP will hold it afloat?

 

[tiznow]

Heavy use of nukes necessary in developing world eekster.. Solar/wind too expensive and can't keep up with the massive demand..

---------

[h=2]Death by pollution: Delhi's fight for clean air[/h]February 18
NEW DELHI


The night before the biggest exam of his life, Sarthak Jain couldn't breathe. His limbs were listless, his breathing labored.
Jain's parents, both trained doctors, recognized the signs of a severe asthma attack. They put the 18-year-old in the family car and raced to a nearby hospital. Doctors determined that Jain was suffering from low levels of oxygen in his blood. His life was in danger. Jain was given injections and put on a nebulizer. His relatives, told to prepare for the worst, huddled together in the intensive care unit and cried.
Jain is one of 20 million Delhi residents forced to breathe the world's most polluted air. While Beijing grabs the headlines for poor air quality, scientists say the pollution here is far worse. In 2014, the World Health Organization released data on air quality in 1,600 cities, and Delhi was found to have the highest concentration of particulate matter smaller than 2.5 micrometers, also called PM 2.5.


The air in Delhi assaults the senses: On bad days, thick smog obscures the sun, reducing visibility to just a few hundred meters. The smog is often tinged with woodsmoke, and the scent clings to jackets and trousers like air from a smoky bar. Delhi's High Court has compared conditions in the city to "living in a gas chamber."
PM 2.5 particles are exceedingly small and can evade the body's normal defenses and penetrate deep into the lungs, causing chronic health problems. They have been linked to increased risk of asthma, heart disease, stroke and respiratory infections, as well as cancer of the trachea, lung, and bronchus.
"In the city of Delhi, exposure to the air is equal to smoking maybe 10 cigarettes a day," Rajesh Chawla, a respiratory physician at Indraprastha Apollo Hospital, told me. "Everybody is a smoker in this city."
Related: I live in the world's most polluted city
The same heavy use of fossil fuels that has helped turn India into the world's fastest-growing major economy is now choking its residents -- and raising questions about the government's blueprint for future development. Other cities have faced similar public health crises. Los Angeles used to be so polluted that, during World War II, residents mistook thick smog for a Japanese chemical munitions attack. Londoners suffered greatly during the industrial revolution. Polluting steel mills contributed to scores of deaths in the American Midwest.
But Delhi's leaders face a particularly fraught policy dilemma: Crack down too hard on the sources of pollution and risk damaging economic growth in a megacity where millions of people still live in abject poverty. Do nothing and sentence all of Delhi's children to a lifetime of breathing dirty air.

Sarthak Jain, now 20 years old.Jain, the young student, survived that night in the hospital. He made enough progress after doctors intervened to stagger out of the intensive care unit, and to his exam. Miraculously, he scored well, and now, two years later, is studying at a local university. Jain has changed, though: He wears a mask whenever he goes outside, and he sees a doctor regularly to keep his asthma in check. He still suffers from attacks -- some severe. He now works with other students to raise awareness about the dangers of dirty air, which he describes in the starkest of terms.
"I cannot just run away from it. I am dying a slow death, I know it," Jain said. "I live in a constant fear of what will happen. I am looking at a bleak future."
Delhi's battle against air pollution dates to at least 2001, when India's Supreme Court, appalled at conditions in the city, ordered public buses, taxis and autorickshaws to switch from diesel power to compressed natural gas. Residents still talk about the massive lines that resulted at petrol stations. The actions forced by the Supreme Court, combined with new fuel standards, greatly improved air quality. But now the trend has reversed. More often than not this winter, when I have checked on my phone, Apple's weather app has simply read "smoke."
The city is sprawling, and a lack of effective public transportation has fueled an explosion in car ownership. The city has 9 million vehicles, and new cars are being registered at a rate of 1,400 per day. India's fuel standards are roughly 10 years behind those of Europe, and low petrol prices incentivize driving. Cooking fuel, construction dust and coal-burning power plants add particles and toxic gasses to the mix. When the weather turns cold, the city's poor huddle together in slums and along busy roads, warming themselves around small wood or trash fires. This winter, PM 2.5 levels have frequently topped 500, a reading that is literally off the charts.
To find out why Delhi was again facing a major crisis, I took a trip to Gurgaon, a suburb of Delhi, to meet the first in a series of doctors, reformers, advocates, lawyers and entrepreneurs who are battling entrenched bureaucracy in an effort to clean the city's air.
The domination of cars over Delhi's transportation infrastructure is on full display during the drive south. I started in central Delhi -- the only part of the vast city that can be described as walkable. The streets feature the occasional crosswalk, and drivers will stop for pedestrians.
But as roads radiate from central Delhi, they become narrower and more chaotic. Crossing from one side to the other, on foot, can be a hair raising endeavor, and pedestrian bridges are rare. On busy streets, long, raised medians, which often include waist-high walls or fences, separate lanes of traffic, making passage impossible. Sidewalks vanish mid-block.
Delhi is an ocean of pavement. Traffic planners have responded to snarls and delays by widening key arteries to accommodate even more cars. At one point on the main route to Gurgaon, which is known for producing legendary traffic jams, the road briefly widens to 15 lanes. During rush hour, it resembles a parking lot. Making the trip on a bicycle would be impossible.

The angry doctor: 'The doom has come'
Medanta MediCity, a 1,250 bed hospital, is a gleaming monument to medicine -- all white walls and metal finishings, along with a massive atrium that resembles an upscale shopping mall. I met Naresh Trehan at his office in the emergency wing.
Trehan is not a typical doctor. In addition to being one of India's leading cardiovascular and cardiothoracic surgeons, he is the hospital's entrepreneurial chairman and managing director, and the kind of person who carries two cell phones. While we talk, he works through a stack of documents, signing page after page while speaking in complete paragraphs about the dangers of air pollution.
"Scientists have been screaming about this for many years," Trehan told me. "This is like Nostradamus predicting doom -- but the doom has come." To help raise awareness about the dangers of air pollution, Trehan released a set of photos that compared the lungs of two patients: one from Delhi, and one from a rural area with better air quality. The lung that had been breathing clean air was pink and fleshy, while the organ from Delhi was covered in a black substance that closely resembled tar. The Monday after our meeting, he released a video of three yoga exercises that can improve lung health.
Trehan has called on the government and courts to quickly implement new reforms. But he has also asked the public to make a collective sacrifice. "Before it was: 'I'll throw the garbage out on the street, because goddamnit it's out of my house.' Now it's coming back into your nostrils, into your lungs, into your children's lungs. We must drive that home," he told me while pounding a fist on his desk for emphasis.

The lawyer with a cause: Fighting for the 'right to life'
Much of the policy action on the crisis has taken place at India's Supreme Court, where judges have repeatedly ruled in favor of anti-pollution reformers. One of these advocates is Saurabh Bhasin, a lawyer at Trilegal who studied at Cardiff University and Cornell Law School, before returning to Delhi five years ago.
In late 2015, before India's festival season began in earnest, Bhasin and two other advocates filed a Supreme Court petition on behalf of their infant children, arguing that extreme air pollution in the city was violating their constitutionally guaranteed "right to life." The petition asked the court to grant an injunction against firecrackers, millions of which are exploded in Delhi to celebrate Diwali, the Hindu festival of lights. The mass use of these fireworks typically produces extreme pollution for days afterward.
"Three years ago, some of our friends actually picked up and moved [away from Delhi]," Bhasin said. "That's when we became aware of how bad the situation was ... we felt that if we went before the court with the interests of children, the court would look at that more favorably."
Bhasin indeed found a receptive audience. A short time later, the Supreme Court levied a new tax on commercial trucks entering the city. The anti-firecracker injunction that Bhasin requested, however, was not granted in time for Diwali. After the celebration, Delhi's pollution readings spiked to some of their highest levels of the year.
The lawyer blames India's politicians and legislators. "Frankly the government has never done anything about it," he said. "[The Supreme Court] has been the only body that has been open to bringing in reforms." His petition, which also asked the court to implement improved fuel standards, is still open before the court.

The air filter entrepreneur: 'We're in it to help you out'
I first met Jay Kannaiyan at a rooftop party in a leafy Delhi neighborhood as fall was giving way to winter. He was holding court near the bar, wowing guests with a small, black box that looked like a Geiger counter. The box was measuring the tiny pieces of carbon that make Delhi's air so dangerous. The levels were, predictably, off the charts.
Kannaiyan is the India head of a startup called Smart Air Filters. When he's not selling air filters, the slender Kannaiyan organizes motorcycle treks into the Himalaya Mountains. I visited him a few weeks later at the Smart Air office in Delhi, a modest warehouse-style space that features more laptops than lightbulbs.
Demand for air filters has skyrocketed in recent years in Delhi as people try to protect themselves from the dirty air, at least while they're indoors.

Jay Kannaiyan, the India head of Smart Air Filters.Smart Air was founded by expatriates living in China, and the company sells just one product in India. When Kannaiyan describes the filter as a fan with a filter strapped on top, he's not exaggerating. The purifier, which claims to do the same job as rivals that cost $100, $500 or even $1,000, is a very simple answer to a complicated problem.
In a little more than a month, the startup has received orders for roughly 500 filters from around India. Kannaiyan spends a lot of time dealing with logistics -- shipping and suppliers are major sources of frustration. Customers drop by the shop to pick up orders, many of them clearly relieved to be getting a filter for their home or office.
Price is a major selling point. A Smart Air Filter goes for 3,399 rupees ($50), which makes it affordable for most middle class families. "People like the fact that it's a bunch of young people who are not in it to make money," Kannaiyan said. "We're in it to help you out."
The science behind air filters is still being studied -- and there is no proof that they deliver better health outcomes. But most models from popular brands are able to dramatically reduce the number of PM 2.5 particles in a closed room.

The children: Living under coal's shadow
I left the Smart Air office and took an autorickshaw north toward Rajghat Power Station, one of the last coal-fired power plants in the city. The station, which had failed a series of environmental tests, was recently shut by the government. But its legacy of pollution has been preserved on Google Maps, where a satellite view of the area still shows a dark plume of smoke wafting skyward from the plant, darkening the landscape.
The plant's silent smokestack towers above its surroundings, which include the site where Mahatma Gandhi was cremated following his assassination in 1948.
At Gandhi's cremation site, hundreds of schoolchildren in matching maroon uniforms were waiting patiently for their turn to see the simple monument to India's liberator. None wore masks. A third of the city's children already have respiratory problems, and nearly 45% suffer from reduced lung function. Air pollution has even been linked to attention-deficit hyperactivity disorder.
Outside the gates of the power plant, three or four families have constructed a small slum consisting of flimsy tents. It's hard to ignore the role of coal in air pollution: India's coal has a high ash content, and it spews toxins and metals into the air when burned.
Yet Prime Minister Narendra Modi has pledged to double the country's coal production by 2020, to levels that will trail only China. During recent climate negotiations, India, already the world's third-largest emitter of greenhouse gases, asserted its "right to grow," an argument for continued coal production.
While Modi's government has also set ambitious solar and renewable energy targets, its supporters argue the country should continue to boost coal production until more of its citizens have access to basic services. An estimated 300 million Indians, for example, are still not connected to the electric grid.

The anti-pollution advocate: Delhi needs 'all of the above' policy
On New Year's Day, Delhi's city government launched a test of an "odd/even" program for drivers. For 15 days, cars with odd-number license plates would be allowed to operate only on odd days, while cars with even number places could be driven on even days. Private buses were pressed into service and additional traffic cops were put on the streets.
The aim: pull millions of cars off the roads.
Anumita Roychowdhury, the executive director of the Centre for Science and Environment, said a permanent program would force the government to improve mass transit, even if it didn't have much of an effect on air quality.
"They have to come up with the template, and that system should be sustained even beyond the 15-day program," Roychowdhury told me.
Roychowdhury is a soft-spoken veteran of the city's air pollution policy wars. She advocates an all-of-the-above approach to combating air pollution -- like better public transportation and more cycling. She takes issue with policies and tax incentives that keep parking and fuel costs low.
"You are actually making it cheaper for me to use my car than to take public transport," Roychowdhury said. Bus ridership has dropped from 60% in 2000 to 41% today. "The irony here today in Delhi is that cars are carrying about 14% of the travel demand, but 80% of transport investment in the city is tied to roads that facilitate car movement, not public transport."
Roychowdhury is a purist. During a recent meeting with her, I noticed there were no air filters in her office, and the front door was wide open. "We do not believe in masks; we do not believe in air filters," she said. "This is the great way for the rich and powerful to isolate themselves from the problem. It takes away the push you need to clean up air in this city."
The debate over Delhi's car restriction experiment began as soon as it ended.
To the surprise of many, drivers largely obeyed the "odd/even" rules. Researchers from Harvard and the University of Chicago, using data from taxi app Uber, determined that vehicular speeds had improved by 5.4% during "odd/even." That suggests traffic was improved, and fewer idling cars might mean cleaner air.
The researchers also compared air pollution levels in Delhi to those in the city's suburbs, which did not participate in the test. They found 18% fewer pollution particles in Delhi's air while the restrictions were in place. Still, the researchers were not convinced that "odd/even," implemented on a permanent basis, would solve Delhi's problems. Instead, they suggested the government experiment with congestion pricing, which would charge drivers for using their cars in crowded areas during peak traffic times.
"Air pollution is shortening lives in Delhi and too many other places in India and elsewhere," the Harvard-Chicago researchers wrote in The Indian Express. "The odd-even scheme has delivered over these two weeks, but may not over the long term."
But the Delhi government is counting the program as a major win. It has directed city agencies to find ways to improve it, and a second run of the plan has been scheduled for two weeks in April.
If nothing else, the car restrictions succeeded in raising awareness. "People are beginning to understand the problem," Roychowdhury said. But, she cautioned, cars are just one source of pollution. The government needs to improve public transportation, heighten fuel standards and crack down on industrial sources of dirty air. And it needs to act quickly. "The kind of levels we have today in Delhi's air, we have to act on each root cause," she said. "We just don't have a choice."

 

[eek.]

They only want nuke because that keeps them in control Tiz, gouging the masses

Solar and wind can be used locally and independently, which is a nightmare scenario for "big energy" and governments

It's not about pollution, or saving people, it's about who gets the big wodges of cash

 

[eek.]

The cleanup at Sellafield, one single plant in England, is heading for the 100 billion mark ($150 billion)

Every 5 years so far the cost increases by 100%, and that's money flushed down the toilet

Nuclear is a serious fallacy as far as I'm concerned

 

[eek.]

In the real world nuclear power is just bad socialism (or stupid socialism)

A private company runs it while it makes profits... then walks away to leave the taxpayer with the unlimited unknown costs of the cleanup

 

[snoop]

Saudis oil cartel to meet US shale oil gangsters in Houston on Tue. Another roller-coaster ride here we come.

 

[tiznow]

Starting to look like we may be able to stumble along a little while longer so long as fed backs off the rage hikes and keeps the cheap debt flowing... Economic data lately not so bad.. Maybe just getting noisy at the transition point to recession?

 

[tiznow]

Gold starting to get warmed up again.. 1244 and counting previous high 1260.. Guessing markets will roll over here soon too.. But still way more confident in gold ready for a major ramp call than than recession coming call... "They" might be desperate enough to do anything to prop it up longer..

 

[tiznow]

As I've been saying for years the recovery a facade where massive amounts of cheap debt floated towards fluffing numbers via share buybacks... Uncreative CEOs just riding the gravy train so they can continue to get paid... When their companies have zero organic growth in reality..

------

[h=1]Share Buybacks: The Bill Is Coming Due[/h]Low rates alone aren’t enough to make it easy to pay off a loan. Many companies may find that out the hard way, especially as high-yield debt markets show signs of strain lately.
U.S. companies went on a borrowing binge in recent years. Nonfinancial corporations owed $8 trillion in debt in last year’s third quarter, according to the Federal Reserve, up from $6.6 trillion three years earlier. As a share of gross value added—a proxy for companies’ combined output—corporate debt is approaching levels hit in the financial crisis’s aftermath.
Most of the debt increase came from bond issuance, as nonfinancial companies took advantage of the lowest rates on corporate bonds since the mid-1960s. That is a plus as companies in many cases extended the maturity of their debt and lowered borrowing costs.
The negative: Rather than investing the funds they raised back into their businesses, companies in many cases bought back stock instead. That was something that many investors welcomed, but it may have come with future costs that they didn’t fully appreciate.
In aggregate, nonfinancial companies’ cash flows over the past three years were enough to cover capital spending. That is unusual—typically, capital spending outstrips cash flows as companies invest for growth—and is reflective of how muted business investment has been since the financial crisis. Over the same period, the companies repurchased $1.3 trillion in shares.
Because those stock buybacks helped reduce companies’ total shares outstanding, earnings per share got a boost. Indeed, absent the past three years’ share-count reductions, S&P 500 earnings per share would have been 2% lower in the fourth quarter than what companies are reporting, according to S&P Dow Jones Indices.
The major reason companies plowed money into buybacks rather than capital spending was that, in a low-growth environment, the returns from investing in expansion didn’t seem as attractive as in the past. This is a big part of why companies were able to borrow cheaply: In a low-growth, low-inflation environment, investors were willing to accept lower returns on corporate bonds than if the economy was moving at a more rapid clip.
The sticking point is that in a low-growth environment, paying down debt also may be harder. Especially because companies weren’t putting the money they borrowed into capital investments, which provide cash flows to help service debt. The stock they bought back won’t do that for them.
Even if this doesn’t present an immediate problem for all companies given how they refinanced debt to longer maturities, it could be a long-term drag on earnings.
Of course, if necessary, companies could issue new equity to help meet debt payments. But existing investors would get diluted.
In many cases, companies have large cash reserves they could tap. This, too, has drawbacks. One is that, in cases where the cash is overseas, it might be subject to taxation before it could be used. Another is that companies’ cash holdings are reflected in their shares. If their cash is diminished, so is their share price.
Investors who cheered as companies bought stock with borrowed money could end up blanching when they see the bill.

 

[tiznow]

Manufacturing data rebounded some/came in better than expected rally time..

 

[PatsFan1283]

Bull is back.

Any crash/big drawdown like to wait until after election.

 

[PatsFan1283]

Ackman still calling herbal life a scam while he props up valeant is hilarious.

I doubt he stays a hedge fund celeb much longer

 

[tiznow]

Think we chop sideways like we've been for 2 years now at best.. As they potentially delay the inevitable for another day (Recession due to cheap debt bubbles plus move to negative rate land)... Valuations still really stretched here and Chinese engine is now gone and slower growth for them here to stay..

data into recession can get choppy.. Will see if rebound in manufacturig numbers continues next month.. And gold still hanging in there saying all is not right with the world...