During the past decade, US equity markets have experienced structural changes with major macroeconomic implications, as policies of both companies and investors have evolved.
An unprecedented change in corporate financial policy.
Many corporate executives now not only channel their companies’ cash flow to shareholders, but leverage up to do so – often at the expense of capex, R&D, and employee compensation and training. This price-insensitive buying of stocks, mirroring the similarly price-insensitive buying by central banks, amounts to a ‘relentless bid.’
We’re now seeing the result in slowing growth of, or even falling, productivity and corporate revenue.
Andrew Lapthorne of SocGen has documented this in detail. Andrew Smithers has also written about this in his column at the FT website. Now the mainstream news media have noticed.
‘In corporations, it’s owner-take-all,’ by Harold Meyerson, op-ed in the Washington Post, 26 August 2014 ‘Why have U. S. companies become such skinflints?’ Paul Roberts, op-ed in the LA Times, 27 August 2014 Soon the investment banks will begin writing about it.
This post was published at Wolf Street on Sept 3, 2014.