My guess is: (1) The long period of relative peace post WW-II and (2) the collapse of the Soviet Union, and (3) the ever-expanding size and liquidity of global financial markets, have led to slowly dwindling cash reserves for all non-financial, publicly traded companies. (Especially if you exclude the most profitable tech companies)
I'd also love to see the trend in cash reserves post 2008 bailouts.
That data might help settle this debate.
Are companies taking advantage of bailout culture?
E.g. there is a social safety net for large companies that doesn't exist for small companies.
As that safety net has formed, has that led to no change in net cash reserves, an increase, or a decrease?
My guess would be that it has led to a decrease.
Because, it seems safe for the largest companies to understand that every 10 years or so, they will need a bailout for unexpected global turmoil. (A war, a man-made disaster, a pandemic, etc.)
This should properly incentivize everyone for the next round. I don't understand why more people don't propose something along these lines.
2. Haven't they put a lot of people's retirement benefit savings into this kind of stock? I guess that could be an excuse.
The answer seems pretty obvious. If you don't believe that any company should be "too big to fail", that's valid, but it's not exactly the situation we have today. Secondly, those shareholders you speak of aren't just a small group of billionaires. Many of these companies make up substantial portions of people's returement savings, not to mention the knock on effects of huge businesses going under.
If those people did the prudent thing, and invested into an index fund, as opposed to picking stocks of companies that are being ran irresponsibly, their retirement savings would, on aggregate, be fine.
I'd rather not have everyone else's retirement-savings-to-be bail out those bad investments.
Index funds go down with the market... but perhaps more importantly, there _has_ been a massive shift to index/ETF trading. You know what that did? Pumped up the market as a whole. Now individual business assessment is less valuable because businesses with crap fundamentals go up and up and up due to index buying. Just another bubble.
Indulging in debt is the American way. Particularly when you can rely on taxpayer financed government bailouts to smooth out the bumps.
All this "we are doing it for shareholders" tripe is nonsense. Buying back stock at all time highs is the most idiotic thing a company can do because it says the business has no better use for said money, which imo is one of the dumbest conclusions a company can come to if growth is the goal (is your R&D department so useless that giving the money back to shareholders is the best allocation choice? Silly)....I'm including companies with a huge war chest like Apple, they are not an exception to this truth.
Many companies (run by idiots) have concluded that financial engineering is more useful than R&D, these badly managed companies should be left right in front of the "market firing squad" when the market turns against them inevitably... No bailouts.
So you buy back shares when they are at the 52 week high and sell more shares when they are at the 52 week low... that's brilliant.
Share buybacks make sense for companies with strong balance sheets and little/ no debt load. For example: Apple. They make zero sense for companies with weak balance sheets and tons of debts (e.g. Most of the airlines).
[0] https://www.macrotrends.net/stocks/charts/AAL/american-airli...
https://americanairlines.gcs-web.com/sec-filings
Here's their latest quarterly filing:
[1] https://www.macrotrends.net/stocks/charts/AAL/american-airli...
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[0]: https://www.cnn.com/travel/article/airport-slots-ghost-fligh...
Because it makes little sense to compare a corporation's finances to your own, especially in a low margin industry, and it would completely stifle growth.
Edit: Why should I, as an individual, be held to a higher standard than a group of individuals who have come together in the name of profit (most of which goes to those at the top) and have limited liability in case of failure?
As to why it's a different standard, it's different for the same reason baseball doesn't use the same rules as water polo. Both sports, but very different.
I'm not here trying to defend poor management, but it's hard to take your "maintain a massive emergency cash fund" idea seriously.
You’re actually proving my point when you say our expenses are high relative to net profits. If we can do it, and still be growing at an adequate pace (we grew earnings at, IIRC, 8% last year), what can’t other companies? Before, you claimed it would stifle growth We have way more software engineers on staff than financial engineers. I find it hard to believe we can do this and other companies can’t. You haven’t given me any reason why they can’t, either.
And, BTW, if repurchased stock is so liquid, why are these airlines crying now? It’s because either they didn’t adequately insure against a systemic risk to their business, or they canceled the shares.
That’s also why you see so often companies with “no profit”. If a company is operating efficiently, they wouldn’t be turning a profit (they’d have already reinvested profit).
Basic profit-seeking capitalism incentivizes companies to either invest in productive areas or to return capital to shareholders so shareholders can invest in more productive areas. Taxes only effect those incentives at the margins, and the past several decades of increasingly corporate-friendly tax reforms don't excuse or justify the decisions that have been made by CFOs.
> If a company is operating efficiently, they wouldn’t be turning a profit
But what's the timeline for gauging efficiency? Any company needing a public bailout even though they had sufficient profit to cover the issue is manifestly not operating very efficiently. The ones taking on debt to fund buybacks are beyond any sort of reasonable justification from a public policy perspective.
We can quibble over the scope of unpredictable downturns, but AFAIU the airlines returned much more capital than would be reasonable in expectations of a 10-year event. 1980s deregulation, 9/11, 2008 recession, and now 2020 pandemic... at some point you can't say that this stuff is "unpredictable" with a straight face. Something always happens, and even if you don't know precisely what or when, it's regular enough that you can substantially insure yourself. There's obvious moral hazard at play here, even though some public support may have been justifiable in this particular case.
Even worse, AFAIU once upon a time airline union retirement funds were major purchasers of airline bonds. There was a sort of quid pro at play that more closely aligned unions and airlines during downturns, as unions were more incentivized than usual to return the airline to profitability through cost-cutting measures. The downside was, at least hypothetically, greater moral hazard--more pressure for government bailouts because more low- and middle-class employees were effected. But these days airlines have increasingly spurned unions and these sorts of arrangements, so any bailout directly lines the pockets of wealthy investors. There should be much less urgency to bailout the industry, especially without an equity exchange.
By your definition any company that didn't see the coronavirus pandemic coming would be not operating efficiently, but the reality is even if your company was operating efficiently your company may be killed by it.
That's like saying a healthy person shouldn't need to be put on a ventilator because if they took care of their body well they wouldn't need it, but the reality is this virus is not something anyone could have prepared for.
Even if they had only kept, say, $20B of that money—reducing their buybacks by less than half—that would surely be $20B they would not now be asking us taxpayers to spot them, and it's possible they would even be able to make a different kind of plan using that $20B to stretch them over at least some significant part of the gap.