On Sep 16, 2007, at 12:45 PM, bhandari at berkeley.edu wrote:
> How can capital be rolling in great investment opportunities if
> investment
> is too risky to undertake?
I said that stockholders - institutional money managers - find capital investment to be too long-term and too subject to risk when compared to the immediate disgorgement of cash into their pockets.
By most conventional measures - profits divided by the capital stock say, or profits as a share of GDP - corporate profitability in the U.S. is very high, but capital expenditures remain quite low. Why should there be such a great gap between average profitability and marginal profits on new investment?
> And why aren't debt financed buy backs a sign
> of underlying difficulties, a sign of a mature and declining
> industry ?
Why? Shareholders want cash on the barrelhead, and corporate managers happily comply. They're big shareholders themselves, and the cash injected into their own pockets doesn't hurt either?
> And where would stock prices be today if the rate of interest had not
> fallen sharply?
Probably lower, but who knows?
Doug