>But this begs the question. True, due to tax advantages and even w/o
>inflation, a leveraged buy back (or whatever it's called) may increase
>the rate of return on equity. But leveraging is not risk-less, and we are
>left with the question of why real investment is not more profitable than
>leveraging.
There's usually no leverage in what I'm talking about. Yes firms sometimes borrow to buy back their own stock, but I'm talking about the use of surplus cash to buy shares.
>Right but as Roe points out present share price depends as well on its
>long-term anticipated price, which raises the question of why net real
>investment meant to secure greater future annualized returns does not
>boost share prices in the short term.
Yeah, everyone says long-term price, but stock prices are mostly a function of current (plus/minus a short period) profits, interest rates, and sentiment. If stocks were priced with only the long-term in mind, they'd hardly move. But since the New York market is open 6.5 hours a day, they bounce all over the damn place.
>Well, then a defensive increase in the rate of " interest" would not be
>the cause of slackened accumulation, as you suggest in the book, but a
>response to the declining rate of profit.
I don't say this. I say firms with high interest costs invest less than those with low interest costs, but interest rates also typically rise in a boom and fall late in a bust, so they can move in the same direction as investment. I'd call the Volcker increases in interest rates offensive rather than defensive, intended to break labor and transform public expectations. It was a very successful act of class war.
>On the whole, however, I would think high technology companies, which are
>not monopolies, are undervalued by the stock market;
There are a lot of near-monopolies in high tech, starting with Microsoft, and moving onto Intel and Cisco. There's a whole school of economics now that says this is kind of inevitable (think of IBM 30 or 40 years ago, too).
>stock market players
>are not capable of evaluating the soft information high tech companies
>provide in their formative stages;
A couple of weeks ago, when K-Tel was just a cheesy company that advertised compliation albums on late-night TV, it sold for $6. Then they announce they're going to sell on the web, and suddenly they're revalued as an Internet stock, and closed today at 66 1/2, down from 78 15/16 a day or two ago. This example may differ from the point you're making however.
>moreover, strictures against inside
>trading militate against purchase by those who can make the proper
>evaluation. Warren Buffet eschews high tech for MacDonald's. Of course
>bank-centered finance has not proven itself any better at financing
>innovation.
Never said it did, really. Interestingly, one of the most glamorous and profitable parts of the U.S. financial structure, venture capital, is the most bank-like of all, with VCs serving on boards, scrutinizing firms inside & out, taking big ownership stakes, etc. Of course, they all want to go public (an "exit strategy") when the firm has grown past the embryonic stage, but at the startup phase, scrutiny matters a lot.
>Perhaps the undervaluation of high technology companies has
>depressed investment levels in the technologies of the future?
High tech companies are most certainly not undervalued. The crappiest companies are flinging off IPOs faster than you can counterfeit currency.
>
>> I say there, and I'll say again, that Jensen is really onto something in
>> his argument about free cash flow - that mature corporations throw off more
>> cash than they can reinvest at a "satisfactory" rate of profit.
>
>I am not at all convinced that you have demonstrated that capitalism is
>choking on an excess of surplus value. For example, there remains a
>scarcity of retained earnings to needed investment.
In the aggregate, U.S. nonfinancial firms have had positive free cash flow, with profits and depreciation running above investment levels. Hard to see a scarcity of retained earnings, and with the markets so receptive to any happy story, only the rankest criminals or incompetents couldn't get financing today.
Doug