Tuesday, October 10, 2017

Corporate profits keep trickling down. To Wall Street, not Main Street

Yes, by all means, let’s give corporate America another tax cut, since it’s really hard for them to get by in today’s economy. I mean, look at what measures the biggest name in American retail has to go these days.
Walmart is sweetening the pot for shareholders before its annual meeting, using the oldest trick in the book.

The retailer on Tuesday morning announced that it had authorized up to $20 billion in stock buybacks over the next two years. That's a massive amount of capital to be allocated for repurchases, which are frequently used by companies to boost shares during times devoid of other positive catalysts.

Not that Walmart will need to fall back on that tactic quite yet. In Tuesday's release, the company also reaffirmed its earnings guidance for 2018, an encouraging sign given mounting pressures in an industry operating increasingly at the whim of Amazon…
And investors seem to like what they're seeing out of Walmart. Its stock rose as much as 4.4% on Tuesday, after climbing nearly 2% on Monday's announcement.
After all, why invest any of that $20 billion in employee wages or offering health care benefits, when you can give it back to Wall Street gamblers and raise your stock price without increasing actual dollars invested in the stock?

Interestingly, Wal-Mart is somewhat behind the game on the stock buyback tactic, as Yardeni Research notes that buybacks among companies in the S&P 500 are actually down over 20% from the peak that we saw at the start of 2016. That being said, the amount was still near $500 billion in Q2 2017, and it’s 4 times the amounts we saw in the early 2000s. Not coincidentally, this has happened as tax rates on capital gains and dividends have been reduced.

And unlike stock buybacks, dividends being handed out to shareholders keep going up, hitting another record high in Q3 2017. This means that the amount of dividends have more than doubled in total dollars during this 8-year bull market run.

Remember that stock buybacks and dividends come from retained earnings, and that's money that could have been used to pay workers more or improve benefits. But instead of those added profits trickling down to people with real jobs, those funds are getting funneled to the investor class who has the time and money to lobby in the board rooms and the halls of Congress. Add in the lack of unions in the 2010s to get a countering voice at that table, and what’s going to stop this upward funneling of wealth in the future?

Got any questions why wages are still relatively stagnant despite the record stock market and full employment? And the last 20 years should tell anyone with an IQ above bug level that once the average person decides that it's safe to go "all in," that's when the Wall Street casino gives you the bad card on the flop, and you get cleaned out.

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