5 ms·

You're not giving the whole picture if you don't mention that IBM's market cap has seen very significant decline over that time period. IBM has been producing

by jonfw 7y ago

You're not giving the whole picture if you don't mention that IBM's market cap has seen very significant decline over that time period. IBM has been producing insane cash-flow over this period and their strategy was to pay out dividends/buybacks rather than to invest in new markets Is IBM even getting bailout money? What does IBM have to do with the bailouts?

onlyrealcuzzo 7y ago
Part of what allows a company to have insane cashflow is issuing corporate bonds at artificially low prices because the Treasury is manipulated by the Fed.
- bequanna 7y ago
  Not sure I follow. What does the US Treasury have to do with private debt issuances? Did you mean that interest rates are manipulated by the Fed?
  - Donald 7y ago
    New Fed programs have been stood up in the last month that directly buy corporate debt.
    - bequanna 7y ago
      That’s a Fed program. Fed != Treasury. What does this have to do with the Treasury?
      - abfan1127 7y ago
        I think he mis-spoke by typing the Treasury.
    - AnimalMuppet 7y ago
      I have the impression that onlyrealcuzzo was referring to something longer term than the last month, though.
  - onlyrealcuzzo 7y ago
    US Bonds are usually referred to as Treasury bonds, which the Fed buys, to manipulate the yield.
- adventured 7y ago
  That doesn't inherently follow at all. It very much depends on the company in question. IBM has a very profitable business and has for the past decade. They're paying around mid 2.x% interest on their debt ($1.3b interest expense last fiscal year). You can double that rate, and IBM can safely handle the cost. They can afford to pay far higher interest rates on their debt while still producing excellent profitability.
  - onlyrealcuzzo 7y ago
    The interest on their debt would be 6-8% if the US Treasury yield wasn't artificially manipulated by the Fed to ~0%. They'd be paying 3-4x that on interest. That's a decent chunk of their profits / buybacks.
est31 7y ago
And dividends/buybacks are a reasonable choice. It moves the choice of whether to invest into new markets to the investors instead of dictating it from above. Companies like Google are blown out of proportion in comparison to the part that actually makes the money, all in order to find the next toothbrush product that may never come. The core Google products barely changed in the last 5 years, yet the employee count almost doubled. Great for the engineers who get the cushy 200k comp jobs, but not great for investors.
- aaaxyz 7y ago
  Also great for all the managers and VPs who get to put on their CV that they managed a team of n engineers that worked on X to increase Y key metric by an insignificant amount or that they created a new product that will get the can in 9 months
- tomweingarten 7y ago
  Even if we take at face value the idea that the products have barely changed, which I completely disagree with, this explanation vastly underestimates how many engineers it takes to scale the infrastructure it takes to run Google Search, Google Cloud, YouTube, etc.
  - basch 7y ago
    Saying "Google hasnt changed" is somewhat of a disservice to what Alphabet is. Its an investment firm / publicly traded venture capital stock, and one of their main holdings is Google. Their future growth potential is much more than just Google, despite Google being their current source of revenue. I would hope, over time, Google Ads being 80% of Alphabets revenue drops and drops, and if I were investing in Alphabet that would be the reason, not to buy into Ad Words ownership. https://www.forbes.com/sites/oliviergarret/2019/09/27/if-you-want-to-get-rich-invest-like-google-not-warren-buffett/ https://www.forbes.com/sites/oliviergarret/2019/09/27/if-you...
- codeisawesome 7y ago
  > The core Google products barely changed in the last 5 years Frontend development and UI updates are not the only way progress is made on the technical infrastructure in technology companies. How do we know that Google isn't battling an adversarial web with 1000s of engineers just to keep the search quality where it is? It must be quite an arms race to behold between Google teams and the coordinated and well motivated spammers, scammers and other bad actors (who also might be leveraging automation, AI and more!)
godtoldmetodoit 7y ago
IBM may or may not be a good example, but I think the overall critique holds here. Stock buy backs weren't a thing until a SEC rule change in the 80's, this is a relatively new phenomenon and not intrinsic to a functioning market. Home Depot could have given their employees massive raises with the amount they've spent on buybacks (15 billion in buybacks in February 2019 alone). With ~400,000 employees, that could be a $37,500 bonus to every employee for the year... The scale of that is breathtaking - and instead of spreading the love around, it goes to the shareholders and C level alone.
- dmoy 7y ago
  I still don't get how a stock buyback is functionally any different from a dividend. Replace dividend with buyback or v versa and everything else is true, except for forced dividend tax.
- londons_explore 7y ago
  > Home Depot could have given their employees massive raises with the amount they've spent on buybacks Each company can decide how they pay their employees. If Home Depot had wanted to pay their employees with stock options, they would have been free to do so. It turns out it usually works out best for both the company and the employees to receive a fixed amount of cash. If the employee wants to use the cash to buy shares or options, that's up to them.
- colinmhayes 7y ago
  >Stock buy backs weren't a thing until a SEC rule change in the 80's, this is a relatively new phenomenon and not intrinsic to a functioning market. Buybacks and dividends are essentially equivalent. This comment shows a distinct lack of understanding. Of course home depot could return their profits to employees, but then it wouldn't be a business. Home depot's sole reason for existing is to return money to shareholders. If they don't do that leadership would be fired.
  - godtoldmetodoit 7y ago
    Ahh the old "shareholders are the only thing that matters" argument. Buybacks and dividends are not equivalent, buybacks are tax advantaged in ways that dividends are not. We've allowed numerous companies to get to a size where they are "too big to fail". They know they are too big to fail, and they get to take advantage of this position. They get to go into near unlimited amounts of debt to finance buybacks to enrich shareholders and C levels, and when times are good this all works out. When the economy enters a downturn and they don't have cash on hand to weather the storm, they know the Fed will be there to bail them out. Something is fundamentally broken here. You can reasonably argue whether it is with the buybacks, or the bailout, but this system is fucked. For more in depth reporting on this, I highly recommend checking out Matt Taibbi. https://taibbi.substack.com/p/resetting-the-bomb https://taibbi.substack.com/p/resetting-the-bomb

by jonfw 7y ago

onlyrealcuzzo 7y ago

Part of what allows a company to have insane cashflow is issuing corporate bonds at artificially low prices because the Treasury is manipulated by the Fed.

bequanna 7y ago
Not sure I follow. What does the US Treasury have to do with private debt issuances? Did you mean that interest rates are manipulated by the Fed?
- Donald 7y ago
  New Fed programs have been stood up in the last month that directly buy corporate debt.
  - bequanna 7y ago
    That’s a Fed program. Fed != Treasury. What does this have to do with the Treasury?
    - abfan1127 7y ago
      I think he mis-spoke by typing the Treasury.
  - AnimalMuppet 7y ago
    I have the impression that onlyrealcuzzo was referring to something longer term than the last month, though.
- onlyrealcuzzo 7y ago
  US Bonds are usually referred to as Treasury bonds, which the Fed buys, to manipulate the yield.
adventured 7y ago
That doesn't inherently follow at all. It very much depends on the company in question. IBM has a very profitable business and has for the past decade. They're paying around mid 2.x% interest on their debt ($1.3b interest expense last fiscal year). You can double that rate, and IBM can safely handle the cost. They can afford to pay far higher interest rates on their debt while still producing excellent profitability.
- onlyrealcuzzo 7y ago
  The interest on their debt would be 6-8% if the US Treasury yield wasn't artificially manipulated by the Fed to ~0%. They'd be paying 3-4x that on interest. That's a decent chunk of their profits / buybacks.

est31 7y ago

And dividends/buybacks are a reasonable choice. It moves the choice of whether to invest into new markets to the investors instead of dictating it from above. Companies like Google are blown out of proportion in comparison to the part that actually makes the money, all in order to find the next toothbrush product that may never come. The core Google products barely changed in the last 5 years, yet the employee count almost doubled. Great for the engineers who get the cushy 200k comp jobs, but not great for investors.

aaaxyz 7y ago
Also great for all the managers and VPs who get to put on their CV that they managed a team of n engineers that worked on X to increase Y key metric by an insignificant amount or that they created a new product that will get the can in 9 months
tomweingarten 7y ago
Even if we take at face value the idea that the products have barely changed, which I completely disagree with, this explanation vastly underestimates how many engineers it takes to scale the infrastructure it takes to run Google Search, Google Cloud, YouTube, etc.
- basch 7y ago
  Saying "Google hasnt changed" is somewhat of a disservice to what Alphabet is. Its an investment firm / publicly traded venture capital stock, and one of their main holdings is Google. Their future growth potential is much more than just Google, despite Google being their current source of revenue. I would hope, over time, Google Ads being 80% of Alphabets revenue drops and drops, and if I were investing in Alphabet that would be the reason, not to buy into Ad Words ownership. https://www.forbes.com/sites/oliviergarret/2019/09/27/if-you-want-to-get-rich-invest-like-google-not-warren-buffett/ https://www.forbes.com/sites/oliviergarret/2019/09/27/if-you...
codeisawesome 7y ago
> The core Google products barely changed in the last 5 years Frontend development and UI updates are not the only way progress is made on the technical infrastructure in technology companies. How do we know that Google isn't battling an adversarial web with 1000s of engineers just to keep the search quality where it is? It must be quite an arms race to behold between Google teams and the coordinated and well motivated spammers, scammers and other bad actors (who also might be leveraging automation, AI and more!)

godtoldmetodoit 7y ago

IBM may or may not be a good example, but I think the overall critique holds here. Stock buy backs weren't a thing until a SEC rule change in the 80's, this is a relatively new phenomenon and not intrinsic to a functioning market. Home Depot could have given their employees massive raises with the amount they've spent on buybacks (15 billion in buybacks in February 2019 alone). With ~400,000 employees, that could be a $37,500 bonus to every employee for the year... The scale of that is breathtaking - and instead of spreading the love around, it goes to the shareholders and C level alone.

dmoy 7y ago
I still don't get how a stock buyback is functionally any different from a dividend. Replace dividend with buyback or v versa and everything else is true, except for forced dividend tax.
londons_explore 7y ago
> Home Depot could have given their employees massive raises with the amount they've spent on buybacks Each company can decide how they pay their employees. If Home Depot had wanted to pay their employees with stock options, they would have been free to do so. It turns out it usually works out best for both the company and the employees to receive a fixed amount of cash. If the employee wants to use the cash to buy shares or options, that's up to them.
colinmhayes 7y ago
>Stock buy backs weren't a thing until a SEC rule change in the 80's, this is a relatively new phenomenon and not intrinsic to a functioning market. Buybacks and dividends are essentially equivalent. This comment shows a distinct lack of understanding. Of course home depot could return their profits to employees, but then it wouldn't be a business. Home depot's sole reason for existing is to return money to shareholders. If they don't do that leadership would be fired.
- godtoldmetodoit 7y ago
  Ahh the old "shareholders are the only thing that matters" argument. Buybacks and dividends are not equivalent, buybacks are tax advantaged in ways that dividends are not. We've allowed numerous companies to get to a size where they are "too big to fail". They know they are too big to fail, and they get to take advantage of this position. They get to go into near unlimited amounts of debt to finance buybacks to enrich shareholders and C levels, and when times are good this all works out. When the economy enters a downturn and they don't have cash on hand to weather the storm, they know the Fed will be there to bail them out. Something is fundamentally broken here. You can reasonably argue whether it is with the buybacks, or the bailout, but this system is fucked. For more in depth reporting on this, I highly recommend checking out Matt Taibbi. https://taibbi.substack.com/p/resetting-the-bomb https://taibbi.substack.com/p/resetting-the-bomb