>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.
But why if profitability is so high--as you say below--are money managers discounting so heavily the presumably greater profits which could result from capital accumulation in comparison to the small and limited gains from buy backs?
Sorry to turn the question around on you. Obviously I don't have a good answer!
>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?
Good question, of course.
I think profitability is being maintained by mergers and acquisitions and accounting games and foreign operations. There is also suspicion that the market will soon lose its government fiscal stimulus (having already lost the Fed's shot in the arm) and that further fiscal stimulus would be damaging, so the marginal efficiency of capital is low. Then add the rise of the euro (perhaps Bush is a secret agent of the European Central Bank), and pessimism about US based investment is not surprising.
Yours, Rakesh
> 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