Thursday, September 25, 2014

Free for All Some

If you were a writer and wanted to hype your income (and had the means), a sure-fire way to do it would be to buy tons of your own books and store them in some warehouse. Then after a short period of time, you could put them back on the market—with a price increase, of course, because sales had been so phenomenal. (Supply! Interest! Demand! you know!) Then after a time, you could buy your unsold books back again. The cycle could repeat itself several times before things began to wear thin (like the cover perhaps; or the disparity between income and cost).

So far, this buyback strategy seems to be working for many of our HyPEs (Highly Paid Employees) in the corporate world. For them, it works to have the corp buy back its shares. The share price goes up; the bright HyPE looks great; s/he collects the contracted "performance" bonus; and thereafter spends more time at work trying to figure out how to make it happen again; and where to spend or invest the income bump.

 Buyback is becoming a super duper1 profitable strategy (at least for some).

Here is the take by financial writer Don Pittis2:
If someone handed you a bundle of free cash, would you stop working?

Perhaps that's what has happened to our economy. As governments create more and more free money [3]— in the form of no-interest loans — and inject it into the financial system, companies have stopped investing in the future.

Instead, as Edward Luce noted the other day in the Financial Times, companies are pouring hundreds of billions of dollars into share buybacks that produce nothing. Except higher share prices, and therefore higher executive bonuses.

"If you need an explanation for why the top 0.1 per cent is doing so well," says Luce,[4] that is where to look. Luce's solution is to change the rules so that executive earnings are based on something other than short-term share prices.
The proposed solutions may need a second look, but here again, we see (déjà vu!) one more case of the “Growth Fund” syndrome.5

How long do we keep duping ourselves?

1. or
2.  (cbcnews Business: Don Pittis, Sep 24, 2014)
3. (cbcnews Business: Don Pittis, Sep 05, 2014)
4. The article in the Financial Times, dated September 21, 2014, and written by Edward Luce is titled: “The short-sighted US buyback boom.” It can be found, if you have an FT subscription, at:
5. ;

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