Stanley Morgan wrote:
agip wrote:
Hello boys. This is amazing and has to be a very positive fact. Assuming it is true.
For every $1 trillion we borrow at prevailing 30 year treasury yields, the interest expense is just $11.7 billion a year. At 10 year yields, the annual interest rate expense is just $5.8 billion per $1 trillion. These numbers are rounding errors in an economy this big.
This why some of us have ignored Chicken Little’s constant whining about corporate debt. Rates are so low, they’d be foolish not to borrow.
Of course, what they do with those loaned funds could be debated for its value. But stock buybacks have value to the stock holder.
“However, Palihapitiya points out that this type of reasoning - which depends on the categorical assumption that equity markets are always efficient distributors of capital - has enabled companies to borrow billions of dollars to buy back their shares, a practice that is obviously harmful to a company's long-term odds of survival, yet excellent for goosing short-term profits.”
"Executives who encourage buybacks and excessive debt-issuance are not exercising good long-term judgment," Chamath Palihapitiya said, adding that "in my opinion, buybacks are evidence of a growing strain of incompetence among CEOs and boards...and times like this is when it gets exposed."
"The capital markets are efficient so when we do buybacks we allocate capital efficiently...my rebuttal is it's clearly not true...at a time when we need our economy to be efficient, we have people out making masks out of socks...and the profiteers buying beachfront condos."
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