• 206 days Could Crypto Overtake Traditional Investment?
  • 211 days Americans Still Quitting Jobs At Record Pace
  • 212 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 216 days Is The Dollar Too Strong?
  • 216 days Big Tech Disappoints Investors on Earnings Calls
  • 217 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 218 days China Is Quietly Trying To Distance Itself From Russia
  • 219 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 223 days Crypto Investors Won Big In 2021
  • 223 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 224 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 226 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 226 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 230 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 231 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 231 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 233 days Are NFTs About To Take Over Gaming?
  • 234 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 237 days What’s Causing Inflation In The United States?
  • 238 days Intel Joins Russian Exodus as Chip Shortage Digs In
  1. Home
  2. Markets
  3. Other

Will Corporate Bondholders Be Left Holding The Bag Again?

The latest Federal Reserve flow-of-funds data show that nonfinancial corporations "retired" a record $587 billion of equity at an annual rate in Q1:2006 (see chart below). Nothing wrong with that in of itself. If corporations have nothing productive to do with their profits then they should return these profits to their shareholders via share buybacks or dividend payments. But there appears to be the beginning of an ominously familiar trend taking place - corporations increasing their credit market borrowing to finance stock buybacks. Also plotted in the chart below is the ratio of nonfinancial corporate borrowing as a percent of capital outlays. After hitting a cyclical low of 0.6% in Q4:2003, this ratio has moved up to new cyclical high of 49.4% in Q1:2006. Although shy of the last cyclical high of 61.7% (Q1:1999), bondholders ought to begin wondering if they are not being sacrificed once again to boost earnings per share for stockholders.

 

Back to homepage

Leave a comment

Leave a comment