A Dollar For Your Thoughts

A Penny For Your Thoughts?  I don't think so.

With stocks just off record highs, it has become a lot more expensive to gets someone's opinion....  then again I suppose it depends on who you ask.

Ask an employee of GM and they'll probably give you whatever is on their mind for a little over minimum wage.

Ask the shareholders of GM and well.... it's either $5 billion, $8 billion, or $25 billion, it depends which activist investor you ask.

Six years ago, at the height of the financial crisis, GM was bailed out by the taxpayer just to stay in business.  Today it's a no fee ATM machine shaped like an 8 passenger SUV,  lining the pockets of the rich, and squeezing the living standards of it's employees.

The bailout of GM six years later has turned into a microcosm of the financial system.    As the economy has "recovered" wages have not,  leaving employees with bills they can't pay, while the company returns an increasing share  of everything to its investors.

Workers are faced with unemployment, or sticking with a job that will just get them by on a daily basis:

(Bloomberg Business)

Seemingly everyday we see a bigger share buyback, a bigger dividend announcement, but wages for employees... it's not close to keeping up.    To even call it wage growth is a misuse of the word growth.

Is there going to be a Nirvana moment when corporations begin increasing wages?   Absolutely not, unless the entire labor force decided to go on strike... but since there are few unions no one goes on strike anymore.  Which means the middle and lower class should just be lucky to have a job and a means to feed themselves.

Corporations are going to continue to pay their employees as little as possible to keep expenditures low and EPS high.  As long as there are workers willing to work for a particular wage, why would the corporations increase wages?  Higher wages means higher expenses.  That's not going to be good for the stock price.

Lower expenses means more money to buy back stock.  Less outstanding shares means a higher earnings per share.  A higher earnings per share means a higher stock price.  A higher stock price means more compensation for the executives.  More compensation for the executives means they must be doing something right.... until interest rates start to rise and the debt fueled buyback circle jerk blows up in everyone's face, including under paid employees.....

In 2008 GM's stock was falling off a cliff.  Everyone wanted to know what was wrong.  The CEO said there was no way GM was going bankrupt.  Any rumor was false.

Here is one article from 2008 on GM:

"After the meeting in talking to reporters, he indicated that bankruptcy speculation was “inaccurate” and that GM had no plans to eliminate any other brands except Hummer.  He said that GM has “no thoughts whatsoever” of bankruptcy and noted it would be better if “we had less speculation along lines that we think is quite inaccurate.”   Wagoner said he felt that critics are overblowing the concerns and that he is “taking the tough but necessary actions to keep GM competitive over the long, long term.”

Less than a year later GM was belly up sucking on the government teat.  The GM CEO was right,  They weren't going to go bankrupt, because the tax payer was going to bail them out.  Brilliant!

Which brings me to today's GM.  The news in 2015 isn't how great the company is doing, it's about how much money activist shareholders can extract out of it.  GM is sitting on $25 billion in cash.  That's a lot of summer homes, luxury yachts, art....

"Government Motors is all growns up."

It is different this time... right?  GM was days away from non-existence in 2008/2009, and is now a robust behemoth with billions upon billions of excess capital to throw around.  The current plan is to give all free cash flow to its shareholders due to pressure from it's investors.

Give me all your free cash flow or I won't help restructure you the next time you go bankrupt!


Maybe I'm delusional.  Perhaps this orgy of corporate hand outs will end magnificently well, which essentially means it will never end...... heck I don't even know what that means.  If the rate of corporate buybacks continues to increase, at some point there will be no stock left to buy.... right?

A Dollar for your thoughts?  Please discuss in comments below:








Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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2 thoughts on “A Dollar For Your Thoughts”

  1. Thanks! So if corporate buybacks continue at the current rate, any guess on to when there will be no shares left to buy? At that point I guess the corporations will focus solely on dividend payments?

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