One reason the stock market is doing so well is due to stock buybacks. Despite high share prices, for dividend-paying firms with top-notch credit ratings, interest rates have never been lower. These firms are borrowing long-term at 2% to buy back stock with, perhaps, a 4% dividend. And since interest is tax deductible, the borrowing costs are even lower. Amazingly and regrettably, these firms see nothing better to invest in!
Tag Archives: Graphs and Laughs
Building on Housing
As if more proof were needed that home building is rapidly improving, and that production builders are the biggest winners, Taylor Morrison plans an IPO to take advantage of the run-up in home builder stock prices. The planned IPO will value the firm at $2.6 billion. Not bad given that it was purchased in 2011 for $955 million. That’s a 172% rise in less than two years!
Cash Crunch
The Cyprus fiasco shows us two things. First, countries that don’t issue their own currency simply cannot guarantee bank deposits as they have no control over their monetary policy. It also shows that monetary unions cannot survive bank runs. The upshot, there will now be a calls for a euro-wide bank regulator (like the FDIC) to prevent bank runs and eliminate the possibility of a nation quitting the euro.
Bad Green Vegetables
The Friday File: 2.2 million Americans get sick annually from contaminated leafy vegetables. That represents 23% of all food-borne illness. Fruits, vegetables and nuts sicken 4.4 million persons, beef, pork and poultry cause 2.1 million illnesses and dairy products, another 1.3 million. As for deaths, the pathogens on poultry are particularly deadly, accounting for 19% of all fatalities. I’m taking no chances and will be subsisting on marshmallows and Doritos.
Sequester Certainty
Given Republican unwillingness to raise taxes and Democratic insistence on it, the delayed automatic $110 billion sequester will kick-in on March 1st. This will reduce GDP growth by 0.75% and guarantees a weak first half of ’13 as the economy is already painfully digesting the two percentage-point Social Security tax hike that began 1/1/13. The good news, the Congress will pass another continuing resolution keeping the government operating through 9/30/13.
Government Goes On!
If a continuing resolution is not passed by the Congress by 3/27/13, the Obama administration will be forced to shut down activities funded by appropriations and all non-essential government operations. But this isn’t that ominous. Only 40% of federal spending relies on appropriations and two-thirds of that is considered “essential” and thus will continue even absent Congressional funding. Thus, each day the government is closed costs only about $2 billion.
Monetary Slow Down
While the Fed has increased the money supply by $2 trillion and will increase it by another $1 trillion by 1/1/14, inflation is MIA. This is because the velocity of money, or the number of times a dollar changes hands before it is saved, has collapsed. Before the Great Recession, M1 (cash) velocity was 10.5, now it’s 6.5 and M2 (cash and checking accounts) velocity was 2, it’s now 1.5.
Houses for Nothing
According to CoreLogic, house prices rose 7.4% for the 12 months ending 11/12 (6.7% excluding short sales), the best numbers since 5/06! With 30-year mortgage rates at 3.4%, this means that the real cost of financing a home is NEGATIVE 4%! That’s like getting paid 4%/year to buy a house. As a result, it’s not at all surprising that existing home sales and new residential construction are rapidly improving.
Baby Me!
The Friday File: To see if having children shortens your life, childless couples who sought in vitro fertilization (IVR) and were successful were compared to those who tried and were unsuccessful. Turns out women who ended up childless had a death rate four times greater than those who gave birth. For childless men, the death rate was twice than that of fathers. I wonder what twins do for lifespan.
Octane Economics
Because households irrationally assign fixed amounts to budget categories such as clothes or food, price changes within a category can result in bizarre behavior; case in point, gasoline. Seems a rise in gas prices (which reduces purchasing power) causes households to shift from high-grade gasoline to low-grade gasoline 20 times more than when purchasing power falls by an equal amount from sources other than gas, such as higher schooling costs.