stock buybacks – The Burning Platform

SUDDENLY IT ALL BECOMES CLEAR

DERANGED CENTRAL BANKERS BLOWING UP THE WORLD

It is now self-evident to any sentient being (excludes CNBC shills, Wall Street shyster economists, and Keynesian loving politicians) the mountainous level of unpayable global debt is about to crash down like an avalanche upon hundreds of millions of willfully ignorant citizens who trusted their politician leaders and the central bankers who created the debt out of thin air. McKinsey produced a report last year showing the world had added $57 trillion of debt between 2008 and the 2nd quarter of 2014, with global debt to GDP reaching 286%.

The global economy has only deteriorated since mid-2014, with politicians and central bankers accelerating the issuance of debt. These deranged psychopaths have added in excess of $70 trillion of debt in the last eight years, a 50% increase. With $142 trillion of global debt enough to collapse the global economy in 2008, only a lunatic would implement a “solution” that increased global debt to $212 trillion over the next seven years thinking that would solve a problem created by too much debt.

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MACY’S IMPLODING, CATCHING DOWN TO SEARS & PENNEY’S

About that resilient consumer and the tremendously low unemployment rate of 5%, maybe someone should tell Macy’s why their sales and profits continue to plummet. Their stock is down 13% today to a three year low of $40. It has fallen 45% in the last four months. It seems the market doesn’t like it when your sales fall 5.2% over last year and your profits crash by 46%. And this is after you close a bunch of your worst performing stores. I have a feeling they might be announcing the closure of another 100 stores after this upcoming disastrous Christmas season.

It was interesting that when I looked for their earnings announcement link on Marketwatch, it was no where to be found. So I went to their website, and now I know why they don’t want the results too widely viewed. It’s much worse than the headlines reveal. When you examine their balance sheet and cash flow statement, you see the looming disaster on the horizon. The executives running this retail titanic might be the dumbest fuckers on earth.

Let’s examine their brilliant strategic moves:

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“For Every Job Created In The US This Decade, US Corporations Spent $296,000 On Stock Buybacks”

Submitted by Tyler Durden on 11/02/2015 10:35 -0500

Yesterday in “$20 Trillion In Government Bonds Yield Under 1%: The Stunning Facts How We Got There“, we did just that: showed several “facts” demonstrating how, as Bloomberg puts it this morning, “QE Helped Wall Street Steamroll Main Street.”

It appears many missed the findings of how central planning has now gone full retard, so here again, are the facts:

There have been 606 global rate cuts since LEH
$12.4 trillion of central bank asset purchases (QE) since Bear Stearns
The Fed is operating a zero rate policy for the longest period ever (even exceeding the WW2 Aug’37-Sep’42 zero rate period)
European central banks operating negative rate policies (Swiss policy rate currently -0.75%; Sweden’s policy rate currently -0.35
Just this month, the PBoC cut rates, the ECB confirmed QE2, Sweden announced additional QE, and the BoJ promised additional easing if necessary “without hesitation”
$6.3 trillion global government bonds currently yielding <0%
$20.0 trillion global government bonds currently yielding <1%
An investment of $100 in a portfolio of global stocks & bonds (60:40) since the onset of QE1 would now be worth $205; in contrast, a wage of $100 has risen to just $114 over the same period
US prime (“CBD”) office real estate has appreciated 168% this decade; in contrast, the value of US residential property across America has risen just 16%
For every $100 US venture capital & private equity funds raised Jan 1st 2010 they are now raising $275; in contrast, for every $100 of US mortgage credit extended and accepted at the beginning of this decade, just $61 was extended and accepted in June 2015 (see Chart 6 – a big reason the US consumer remains so moribund)

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IGNORE THE MEDIA BULLSH*T – RETAIL IMPLOSION PROVES WE ARE IN RECESSION

Here we go again. The dying legacy media will continue to support the status quo, who provide their dwindling advertising revenue, by papering over the truth with platitudes, lies, and misinformation. I have been detailing the long slow death of retail in America for the last few years. The data and facts are unequivocal. Therefore, the establishment and their media mouthpieces need to suppress the truth.

They spin every terrible report in the most positive way possible. They blame lousy retail results on the weather. They blame them on calendar effects. They blame them on gasoline sales plunging. That one is funny, because we heard for months that retail spending would surge because people had more money in their pockets from the huge decline in gasoline prices.

September retail sales were grudgingly reported by the Census Bureau this morning and they were absolutely dreadful. This followed an atrocious August report. The MSM couldn’t blame it on snow, cold, flooding, drought, or even swarms of locusts. So they just buried the story in their small print headlines. The propaganda media machine had nothing. They continue to spew the drivel about a 5.1% unemployment rate as a reflection of a booming jobs market. If we really have a booming jobs market, we would have a booming retail sector. The stagnant retail market reveals the jobs data to be fraudulent. The 94 million people supposedly not in the job market can’t buy shit with their good looks.

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THEY’RE GONNA NEED A BIGGER BALANCE SHEET

Driving home from work on Friday night I found it terribly amusing listening to the “business journalists” on the local news station trying to explain the 531 point plunge in the Dow and the 1,105 point plummet from the Tuesday high. The job of these faux journalist mouthpieces for the status quo is not to report the facts, analyze the true factors underlying the market, or seek the truth. Their job is to calm the masses, keep them sedated, and paint the rosiest picture possible.

The brainless twit who reported the stock market bloodbath immediately went into the mode of counteracting the impact of what was happening. She said the market is overreacting, as the country has strong job growth, low inflation, a strongly recovering housing market, and an improving economy. The fact that everything she said was a complete and utter falsehood was exacerbated by her willful ignorance of the Fed created bubble leading to the most overvalued stock market in history. How can these people pretend to be business journalists when they haven’t got a clue about stock market valuations and just say what they are told to say?

Anyone who listens to a mainstream media pundit, talking head, or spokes bimbo deserves the reaming they are going to receive. They are paid to lie, obfuscate, spin, and propagandize on behalf of their corporate media executives, who are beholden to Wall Street bankers, mega-corporations, and the government for their advertising dollars. The mainstream media is nothing but entertainment for the masses, part of the bread and circuses designed to distract the dumbed down, iGadget addicted, ignorant masses.

The entire stock market bubble has been created and sustained by the Federal Reserve and their QE and ZIRP schemes to prop up insolvent Wall Street banks, enrich corporate executives, and produce the appearance of a recovering economy. The wealth was supposed to trickle down to the masses, but the trickle has been yellow in appearance and substance. The average American is far worse off today than they were in 2007, with the Greater Depression Part 2 underway.

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WHY STOCKS WILL CRASH IN TWO CHARTS

“Things always become obvious after the fact” – Nassim Nicholas Taleb

“Facts do not cease to exist because they are ignored.” – Aldous Huxley

The S&P 500 currently stands at 2,126, fractionally below its all-time high. It is now 300% above the 2009 low and 34% above the 2008 and 2001 previous highs. Most people believe this is the new normal. They are comfortably numb in their ignorance of facts, reality, the truth, and the inevitability of a bleak future. When the herd is convinced progress and never ending gains are the norm, the apparent stability and normality always degenerates into instability and extreme anxiety. As many honest analysts have proven, with unequivocal facts and proven valuation measurements, the stock market is as overvalued as it was in 1929, 2000, and 2007.

Facts haven’t mattered, as belief in the infallibility and omniscience of Federal Reserve bankers, has convinced “professionals” to program their high frequency trading supercomputers to buy the all-time high. If central bankers were really omniscient and low interest rates guaranteed endless stock market gains, then why did the stock market crash in 2000 and 2008? The Federal Reserve’s monetary policies created the bubbles in 2000, 2007 and today. There was no particular event which caused the crashes in 2000 and 2008. Extreme overvaluation, created by warped Federal Reserve monetary policies and corrupt Washington D.C. fiscal policies, is what made the previous bubbles burst and will lead the current bubble to rupture.

Benjamin Graham and John Maynard Keynes understood how irrational markets could be over the short term, but eventually they would reach fair value:

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” – Graham

“The market can stay irrational longer than you can stay solvent.” – Keynes

Graham’s quote reflects the difference between hope and reality. This explains the ridiculous overvaluation of Amazon, Shake Shack, Twitter, Linkedin, Tesla, Google, and the other high flying new paradigm stocks. Story stocks soar because the herd believes the stories peddled by Wall Street and company executives. Five of these six stocks don’t have a PE ratio because you need earnings to calculate a PE ratio. In the long run the market will weigh the value these companies based upon profits and cashflow. It is the same story for the market as a whole. There is no question who is to blame for what now amounts to a three headed hydra of bubbles poised to burst.

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WHAT THE FED HAS WROUGHT

The chart below might be the most powerful indictment of the Federal Reserve and our corporate fascist empire of debt ever created. Some people don’t get charts. Charts tell a story. This chart tells the story of elitist bankers supporting the agenda of a corporate fascist state, resulting in the gutting of the middle class. Anyone who views this chart in a positive manner is either a Federal Reserve banker or their paycheck is dependent upon the continuation of the pillaging of the working class. Corporate profits are at all-time highs. Profit margins have always reverted to the mean throughout modern history. If they remain at all-time highs then something is terribly wrong.

“Profit margins are probably the most mean-reverting series in finance, and if profit margins do not mean-revert, then something has gone badly wrong with capitalism. If high profits do not attract competition, there is something wrong with the system and it is not functioning properly.” – Jeremy Grantham, Barron’s

Here is the story I see in that chart. Corporate profits as a percentage of GNP have averaged 6.5% over the last 67 years. As you can see, it is a volatile figure. Corporate profits rise during expansions and fall during recessions. That has been a given over time. The reason corporate profits have always reverted to the mean was due to the basic tenets of free market capitalism. When a company is generating outsized profits, that industry will then attract new competitors, resulting in price competition and lower profits. From 1950 through 1971, corporate profits as a percentage of GNP fluctuated in a narrow range between 5% and 7%. This was a reflection of a market driven by competition, a non-interventionist Federal Reserve, and a government not captured by corporate interests.

It is no coincidence since Nixon closed the gold window in 1971 and unleashed greedy bankers, feckless politicians, and self serving corporate executives to utilize easy money and prodigious amounts of debt to financialize our economic system and deform capitalism, corporate profits have boomed and busted. The Fed created booms and busts are clearly evident on the chart. Nixon toady Arthur Burns created an inflationary boom in corporate profits to 8% of GNP in the late 70’s followed by the collapse to 3% caused by Volcker having to raise rates to extreme levels to crush the Burns created runaway inflation.

You can see exactly when the Maestro assumed command at the Fed and proceeded to introduce the Greenspan Put, encouraging speculation, borrowing and mal-investment. His easy money boom led to the dot com bubble that doubled corporate profits from their 1987 low. Of course the profits vaporized in an instant and plunged to 4% of GNP in 2001. Greenspan and then Bernanke proceeded to drive interest rates to record lows creating a prodigious housing bubble resulting in the greatest level of mal-investment and financial fraud in world history. Corporate profits as a percentage of GNP skyrocketed from 4% to 10% in the space of six years. The banking cabal had captured the system.

The Fed orchestra kept the music playing and Wall Street kept dancing the rumba with their corporate CEO dates. The Keynesian acolytes were ecstatic. The Austrians warned of the impending bust. No one listened. The collapse of the worldwide financial system was portrayed by the corporate mainstream media, bankers like Dimon, corporate CEOs like Immelt, billionaires like Buffet, captured government bureaucrats like Paulson, and politicians like McCain and Obama, as a systematic risk that required a taxpayer rescue of criminals.

The $800 billion gift to bankers and mega-corporations by the Washington DC Party of captured politicians was chicken feed compared to the $3.5 trillion of newly printed fiat handed to Wall Street and corporate America by Bernanke and Yellen. Five years of 0% interest rates have impoverished senior citizens and savers, but they have done wonders for Wall Street and mega-corporation profits, along with executive bonuses. Corporate profits soared from 4.5% of GNP to an all-time high of 10.5% in the space of three years and have remained at this elevated level.

Who Needs Wage Earners Anyway?

Is it a coincidence that corporate profits as a percentage of GNP are at record highs while employee compensation as a percentage of GNP is at record lows? Is it a coincidence that employee compensation as a percentage of GNP peaked at 51% in 1971? That year certainly seems to be a turning point in U.S. economic history. Gold’s purpose as a check on statists, Keynesians, politicians, bankers, and the military industrial complex couldn’t be any clearer. The decline has multiple causes, but the storyline about technology being the major cause is patently false. My observations are as follows:

From the end of World War II until the mid-1970s employee compensation as a percentage of GNP was consistently between 49% and 51%. The middle class saw their standard of living rise as wages outpaced inflation, savings rates were high and led to capital investment, debt was used for long term purchases like a home or automobile, and bankers accepted deposits and made safe loans. Technological progress over the thirty years was constant, but did not result in declining wages.
From the moment Nixon closed the gold window, employee compensation as percentage of GNP relentlessly declined for the next quarter of a century from 51% to 44%. Over this time frame our economy deformed from a goods producing system driven by savings and capital investment into a service/financial economy built upon consumer debt, conspicuous consumption and market gambling. Our iconic mega-corporations fired Americans and hired Chinese slave laborers, lobbied for tax breaks, invested in their own stock, kept wage increases below the level of true inflation, and paid extravagant compensation packages to their Harvard MBA executives.
The brief upturn created by Greenspan’s irrational exuberance 90’s boom was short lived. The relentless decline resumed after the dot com collapse, even as Greenspan and Bernanke blew their epic bubble. Their financial engineering machinations on behalf of Wall Street did nothing for the average worker on Main Street. Employee compensation as a percentage of GNP declined from 47% to 44% BEFORE the financial collapse.
Unequivocal proof that Bernanke’s sole purpose of QE and ZIRP was to benefit his Wall Street owners can be seen in the continued decline from 44% to 42% since 2008. There has been no recovery for the average American. Wall Street is rolling in dough. Corporate America is rolling in dough. Politicians are rolling in dough. The average American worker is rolling in dog shit.

The mouthpieces for the Deep State insist corporate profits have reached a permanently high plateau. It’s another new paradigm. Just like 1929, 1999, and 2007. Jeremy Grantham is right. The system is broken. The inmates are running the asylum. But financial engineering will not work permanently. Baijnath Ramraika and Prashant Trivedi in their outstanding article Why Jeremy Grantham is Right about Corporate Profit Margins prove that corporate gross margins have not grown, technological advancement has not been a major factor, innovation and capital investment are non-existent, and corporate CEOs have utilized one time schemes to boost profits.

There are a few major reasons for record corporate profits. The Fed’s gift to banks and mega-corporations of zero interest rates have allowed S&P 500 corporations to refinance their existing debt and take on new debt at below market interest rates. The average interest rate paid by S&P 500 companies is now at all-time lows. Any normalization of interest rates would crush corporate profits.

Even though you hear constant propaganda from the corporate MSM, corporate CEOs, and captured politicians about the dreadful level of corporate taxes, the truth is that mega-corporations are paying record low levels of actual taxes. When profits are at record highs and tax payments at record lows you know they have captured the system. “Creative” tax avoidance and the FASB allowing banks to mark their assets to fantasy have played an enormous role in record profits.

The short term oriented casino mentality of corporate CEOs can be plainly seen in the fact depreciation expense as a percentage of revenue is at 25 year lows, resulting in short term profits but long-term decline. Instead of investing in capital to increase efficiency or expand their business, greedy myopic CEOs have chosen to buy back their own stock at all-time high prices. They did the same thing in 2005 – 2007. Driving up quarterly earnings per share to boost their own stock option compensation is how it rolls in corporate America today. Investing in their workers through higher wages isn’t even a consideration. They don’t teach that in Ivy League MBA programs. SG&A expenses as a percentage of revenue have been driven to all time lows, as outsourcing, downsizing, and working people to death have done wonders for corporate profits.

Ramraika and Trivedi reach damning conclusions of corporate America, based on their detailed unbiased research:

As the world moved increasingly towards the idea of shareholder-value maximization, time horizons for management and the shareholders have shortened. As Montier shows, the average lifespan of a company in the S&P 500 in the 1970s was about 27 years and is down to about 15 years now. In tandem, the average tenure of CEOs is down from about 10 years in the 1970s to about 6 years now. Combine this with the incentive systems prevalent today (think stock options), and it is only logical that a CEO who is going to be around for as few as six years and is going to get a large chunk of her rewards in stock options will want to see higher stock prices.

Cutting SGA expenses and postponing capital investments — actions that carry positive short-term earnings impact at the expense of a business’ competitiveness in the long-term — look promising to managers whose payoffs depend on stock prices in the short-term. Not surprisingly, the renters (there are hardly any owners any more) clamor for just such actions. The problem with this thinking is that the long-term eventually shows up. And when it does, profit margins will have no choice but to remember their long forgotten tendency to revert to mean.

Are interest rates going to be driven lower for corporations? Are taxes going to be driven lower? How many more people can corporations fire? Have economic downturns been eliminated by the Federal Reserve? Will record profits not result in increased competition and price wars? Can wages be driven even lower?

The financial, economic and political system has been captured by corporate fascist psychopaths. The Federal Reserve has aided and abetted this takeover. Their monetary manipulations have resulted in this deformity. Psychopaths always go too far. The American middle class has been murdered. Decades of declining real wages have left them virtually penniless, in debt up to their eyeballs, angry, frustrated, and unable to jump start our moribund economy by buying more Chinese produced crap. Yellen, her Wall Street puppeteers, and the corporate titans should enjoy those record profits and record stock market highs. It won’t last. Short-term profits will be wiped out, as long-term consequences always arrive when you least expect it. The artificial boom will lead to a real depression. Luckily for the oligarchs, most middle class Americans are already experiencing a depression and won’t notice the difference.

“True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression.” – Ludwig von Mises

Why Stocks Just Won’t Drop: “Companies Spend Almost All Profits On Buybacks”

Buying back your own stock at all-time highs rather than investing in your business or paying dividends to your shareholders is always a brilliant move. Buy high and sell low. CEO’s issue themselves and their executive cronies millions of stock options and then attempt to drive up EPS by buying back their stock with borrowed easy money provided by Grandma Yellen and firing workers. Sounds like a recipe for success in our warped world of denial and delusions.

Submitted by Tyler Durden on 10/06/2014 08:06 -0400

Back in May we revealed that the “Mystery, And Completely Indiscriminate, Buyer Of Stocks“, obviously a key player in a time when the Fed’s own indirect monetization of stocks was fading, was none other than corporations themselves, gorging on cheap debt and using the proceeds to buy back their own stock.

A subsequent look in Q2 buybacks showed something troubling: after soaring to an all time high in Q1, stock buybacks tumbled in the second quarter to the lowest level since Q1 of 2013, perhaps also a reason why the stock market has gone very much nowhere in the past quarter.

And while we explained that the vast majority of companies are using up as much leverage as they can to fund said buybacks, with both total and net corporate debt levels having risen to new all time highs refuting misperceptions that corporate debt is actually declining…

… something even more disturbing was revealed today, when Bloomberg reported that companies in the Standard & Poor’s 500 Index, are “poised to spend $914 billion on share buybacks and dividends this year, or about 95 percent of earnings!”

And a reminder, when a company tells Goldman’s desk, for example, to buy back X shares, it almost always has no price preference, i.e., it is indiscriminate what happens to the resulting stock price because it has to fill a quota in a given time period. Needless to say, buying without regard for price tends to be strongly “bullish.”

For those who don’t grasp the implications of this staggering number, we will just say what we have said before: corporations are undergoing a slow motion LBO/MBO of the entire S&P 500, courtesy of ZIRP and in Europe, NIRP only without any concerns about resulting IRRs and leverage. Those will be some other management team’s problems.

From Bloomberg:

Money returned to stock owners exceeded profits in the first quarter and may again in the third. The proportion of cash flow used for repurchases has almost doubled over the last decade while it’s slipped for capital investments, according to Jonathan Glionna, head of U.S. equity strategy research at Barclays Plc.

Buybacks have helped fuel one of the strongest rallies of the past 50 years as stocks with the most repurchases gained more than 300 percent since March 2009. Now, with returns slowing, investors say executives risk snuffing out the bull market unless they start plowing money into their businesses.

While not news to Zero Hedge readers who have known all of this since 2012, more and more are figuring out that you can’t have growth (i.e., CapEx spending, i.e., real employment), and soaring stocks during an ongoing depressions and Fed-induces market levitation:

CEOs have increased the proportion of cash flow allocated to stock buybacks to more than 30 percent, almost double where it was in 2002, data from Barclays show. During the same period, the portion used for capital spending has fallen to about 40 percent from more than 50 percent.

The reluctance to raise capital investment has left companies with the oldest plants and equipment in almost 60 years. The average age of fixed assets reached 22 years in 2013, the highest level since 1956, according to annual data compiled by the Commerce Department.

But who needs capex when you have financial engineering.

That said, some are finally wondering if financial engineering, which as we showed over the weekend, has become the primary source of global “investment”, eclipsing such barbaric relics as trade…

… may have gone too far:

“You can only go so far with financial engineering before you actually have to have a business with real growth,” Chris Bouffard, chief investment officer who oversees $9 billion at Mutual Fund Store in Overland Park, Kansas, said by phone on Oct. 2. “Companies have done about all that they can in terms of maximizing the ability to do those buybacks.”

Bzzz, wrong: you can alwaysdo more financial engineering just ask Goldman Sachs. Case in point, the spin offs of PayPal first and today, Hewlett-Packard, both following the sage advise of Goldman Sachs to maximize “shareholder value”, if not jobs, as per today’s announcement that another 5,000 HPQ workers will get the boot.

Others clearly see this and are urging management teams to do even more:

While the ratio to earnings shows how buybacks and dividends compare to past economic expansions, it doesn’t indicate companies are struggling to fund them. Five years of profit growth have left S&P 500 constituents with $3.59 trillion in cash and marketable securities and they’ve raised almost $1.28 trillion in 2014 through bond sales, headed for a record.

“Buybacks are something corporations can take control of and at low borrowing costs, they’re a viable option,”Randy Bateman, chief investment officer of Huntington Asset Advisors, which manages about $2.8 billion, said by phone on Oct. 1. At the same time, he said, “If management can’t unearth future opportunities for growth, as a shareholder, I lose confidence.

The bottom line: “S&P 500 companies will spend $565 billion on repurchases this year and raise dividends by 12 percent to $349 billion, based on estimates by Howard Silverblatt, an index analyst at S&P. Profits would reach $964 billion should the 8 percent growth forecast by analysts tracked by Bloomberg come true.”

Or, said otherwise, all US corporate retained earnings are now fully unretained, and go straight to shareholders, leaving increasingly less, and in many cases nothing, to fund top line growth (and even maintenance), and with that, the economy. Just in case anyone needed something else to counter Obama’s wild propaganda that things are getting better of course…

TARGET & LOWES REFLECT OUR DYING WARPED ECONOMY

Target and Lowes reported their quarterly results today. Target’s results were atrocious and Lowes’ results were lackluster, to say the least. When you dig into the numbers for two of the largest retailers in the world, you can see our dying warped society clearly.

Target’s annual sales exceed $72 billion.

Lowes’ annual sales exceed $53 billion.

There are a couple data points that reveal the death of retail on the horizon. Target operates 1,925 stores. Lowes operates 1,835 stores. Prior to the 2008 financial collapse these two behemoths were opening hundreds of stores per year. Their scientific financial models spit out ever higher sales as they dominated their markets. It seems their assumptions were slightly optimistic. They’ve had their come to Jesus moment and now realize their expansion days are done.

Target has opened a grand total of 7 stores in the last year. Lowes will open 10 new stores this year.

Target is the poster child for awful management over the last seven years. Of their 1,925 stores, 1,795 of them are in the U.S. Their dreadful foray into Canada accounts for the other 130 stores. They had 1,719 U.S. stores in 2009. It costs approximately $25 million to construct and open a Target store.

In the last five years they have spent approximately $1.9 billion building new stores. Over this same time frame they spent $10.9 billion buying back their own stock. Think about that for a moment. Rather than investing in their business or giving the money back to shareholders through dividends, they bought their own stock in order to boost EPS for Wall Street and drive their stock price higher. They borrowed $2 billion to buy back the stock. With $13.9 billion of debt, maybe their cash could have been used to pay it down rather than buying their overpriced stock. Their stock price is exactly where it was in 2010, and 20% below its 2013 high.

Guess who received a huge chunk of the shares bought back? That’s right. Top management received massive multi-million dollar compensation packages in stock. It was in their best interest to drive the stock price higher. Maybe that is why they didn’t invest in information technology security. The unprecedented breach and loss of millions of credit card data to criminals has destroyed their credibility as a retailer.

The chickens came home to roost today. Their profit plunged by $377 million to a pitiful $234 million. For comparison purposes, they made $686 million in the 2nd quarter of 2007. Their comparable store sales continue to stagnate. Comparable store sales were flat, but the number of customer transactions declined by 1.3%. Price increases of 3.0% offset the traffic decline. Nothing like a little non-existent inflation to help out.

Target is a disaster. Their expansion days are over. They haven’t admitted it yet, but they will be closing hundreds of stores as our consumer society runs out of money to buy their Chinese made crap.

Lowes is a few years behind Target in the downward spiral phase, but they are employing the exact same warped strategy. Their profit was up 10.4%, while comparable sales were up only 4.4%. They didn’t report their traffic counts, but you can assume they had the same price inflation as Target, so store traffic increases were probably in the range of 1% to 2%. They lowered their profit guidance, as the fake housing recovery is not boosting sales.

But, they are implementing the Target strategy of buying back their stock to boost EPS. Their reported EPS was up 18%, as they bought back $1.1 billion for the quarter and $2.0 billion for the first six months. Since 2009 these bozos have bought back $14.1 billion of their own stock, enriching their executives at the expense of employees and stockholders. And they didn’t do it with excess cash flow. They borrowed $5.6 billion to buy back that stock. Over this same time frame they only spent $3 billion on new stores.

The managements of the mega-retailers know the glory days are over. The American consumer is tapped out and Boomers will not be spending what they don’t have. The CEO’s have chosen to enrich themselves on the downside, rather than return cash to stockholders. This is now the American way. It has been aided and abetted by the Federal Reserve. The excessively low interest rates have allowed corporations to borrow and buy back their stock in order to boost their stock price. Actual profit growth not required. When “high yield” junk bonds issued by dodgy companies across the land yield less than 5%, you’ve got yourself a bond market bubble.

According to the Federal Reserve, corporate debt has risen 27% over the past five years to an all-time record of $9.6 trillion. Close to $2 trillion was used to buy back stock, with $500 billion used last year alone. These companies then turned around and issued $180 billion of the shares to top management. This is the circle of life at the top. Meanwhile real wages for the real workers continue to decline. The Fed has created another bubble in corporate stock buybacks, and it isn’t just retailers.

The iconic manufacturing giant Caterpillar just announced its 20th month in a row of negative year over year sales. If manufacturing hasn’t recovered and retail hasn’t recovered, what is left? The stock market is reaching new highs solely on the bubble blowing abilities of Ben and Janet.

Caterpillar has it all figured out. Increasing revenue and profits is old school. Investing in your business is for suckers. You can push your stock to all-time highs with new paradigm thinking. Just buy back $2.1 billion of your own stock and redistribute it back to your top executives. Then it will trickle down to the working class eventually.

I wonder if historians will look back on this period in U.S. history and wonder WTF were those idiots thinking. They will rightly wonder how a country could believe that layering trillions in debt upon trillions of debt, in order to consume our way to prosperity, while waging endless wars, making entitlement promises that couldn’t possibly be kept, and funneling the vast majority of the nation’s wealth to .1% of the population, would possibly end well.

This dying, warped, delusional empire is a wonder to behold. We surely won’t go out with a whimper.

IBM’S REVENUE DECLINES FOR 9TH STRAIGHT QUARTER & WALL STREET CHEERS

The Fed’s Financial Repression At Work: How Big Blue Was Turned Into A Wall Street Slush Fund

by David Stockman • July 18, 2014

IBM is a poster child for the ill-effects of the Fed’s financial repression. In effect, the Fed’s zero interest rate policies are telling big companies to issue truckloads of debt and use the proceeds to buyback shares hand-over-fist. That way fast money speculators on Wall Street are appeased by the resulting share price lift, and top executives collect bigger winnings on their stock options.

This juxtaposition should not be surprising. For more than a decade now, IBM has been eating its seed corn. Since the beginning of fiscal 2004, Big Blue has posted $131 billion in cumulative net income, but saw fit to reinvest fully $124 billion or 95% of its earnings in its own balance sheet, which is to say, in buying back its own stock.

At the same time, it also paid out nearly $30 billion in dividends. In combination, therefore, it disgorged $153 billion in buybacks and dividends—-or 117% of its net income! And this wasn’t a temporary maneuver: These figures represent the results of IBMs last 42 quarters. In short, IBM has become a stock price inflation machine, driven by the pressures and opportunities emanating from the Wall Street casino fostered by the Fed.

During that same period, IBM invested a mere $45 billion in CapEx, and that was hardly 90% of its charges for depreciation and amortization of existing capital assets. Given the fact that Capex is measured in current dollars, and D&A allowances are expressed in historical dollars, it is evident that in real terms IBM has been drastically underinvesting in its capital base.

Moreover, the same thing is true when the investment component that is charged to the current P&L is examined. As a giant in the global technology industry, IBM needs to spend heavily on research, development and engineering (RD&E) to keep up with the competition. But it hasn’t. During fiscal 2013 it spent $6.2 billion on RD&E—but that represented a 14% decline in real terms from the $7.2 billion (2013$) it spent ten years ago.

So how has it managed to keep the game going? In a word, by means of financial engineering. Its tax rate has been cut in half—from 30% to barely 15%. It has spent nearly $30 billion on acquisitions, repeatedly creating accounting reserves (i.e. cookie jars) at the get-go in order to insure that the dozens of small companies bought with cheap debt were highly accretive to EPS.

But at the end of the day, it was done by sacrificing its balance sheet. In 2004 IBM had $13 billion of net debt. Today the figure stands at just under $37 billion. And why not. IBM’s average weighted cost of debt last year was just shy of 1%. Thank you, monetary politburo!

Needless to say, under a honest free market in the financial sector, America’s once greatest technology company would not be functioning as a slush fund for Wall Street gamblers.

Charts re-posted from:

http://www.zerohedge.com/news/2014-07-17/scariest-chart-ibms-history

PAY FOR PERFORMANCE

The median CEO pay is now over $10 million per year, with banking and media oligarchs “earning” $20 to $40 million per year. CEOs are treated like rock stars. The same asshole banker CEOs who destroyed the global economy in 2008 are now rewarded with tens of millions because the Fed gives them billions at 0% and assures them they can take any risk without worrying about future losses. They rig the stock market and act like they deserve every penny of their compensation.

Take a long hard look at the chart below. At the peak of the stock market in 2007/2008, these bozos were buying back their own stock at an all-time high of $120 billion per quarter. So they were buying high. When the market was reaching bottom in early 2009 when stock prices were 50% lower, they were buying back 80% less of their stock. Isn’t the idea to buy low and sell high? These nitwit CEOs are nothing more than lemmings. The market is now at all-time highs again and these overpaid boneheaded idiots have obliterated their previous buyback high by buying back $160 billion of their own stock.

I’m sure this will be a fantastic investment. Someone should give them a raise. Of course, most of their compensation is now in stock and the buybacks boost EPS. Why would they spend money expanding their business and investing in people and capital? That’s old school thinking. These highly educated CEOs make 257 times the average worker, so they must know better. Right?

And so it goes.

According to a new study by the AP, the median pay package for a CEO rose above eight figures for the first time last year. The head of a typical large public company earned a record $10.5 million, an increase of 8.8 percent from $9.6 million in 2012, according to an Associated Press/Equilar pay study.

The study details:

Last year was the fourth straight that CEO compensation rose following a decline during the Great Recession. The median CEO pay package climbed more than 50 percent over that stretch. A chief executive now makes about 257 times the average worker’s salary, up sharply from 181 times in 2009.

CEO comp has risen 50% over the past five years, and was up 8.8% in 2013. By comparison, the income of the US middle class has declined over this time period.

The average CEO now make 257 times the average worker’s salary, up 41% since 2009.

The industry with the biggest pay bump was banking. The median pay of a Wall Street CEO rose by 22 percent last year, on top of a 22 percent increase the year before. BlackRock chief Larry Fink made the most, $22.9 million. Kenneth Chenault of American Express ranked second with earnings of $21.7 million.

Media industry CEOs were, once again, paid handsomely. Viacom’s Philippe Dauman made $37.2 million while Walt Disney’s Robert Iger made $34.3 million. Time Warner CEO Jeffrey Bewkes earned $32.5 million.