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postpawl | 7 months ago

GM announced a $10 billion stock buyback in November 2023, literally weeks after claiming they couldn't afford worker raises during the UAW strike that cost them $1.1 billion. Since 2015, GM has authorized $37.7 billion in total buybacks while their new UAW contract costs $9.3 billion over four years. When you can find $10 billion for buybacks immediately after settling a strike, the problem isn't "expensive labor". It's management that chose financial engineering over building competitive manufacturing capabilities.

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impossiblefork|7 months ago

Yes, but companies run for investors will always have to pay investors, so it would have either been a buyback or dividends. When interest rates go up, companies end up competing with government bonds, and they must give dividends that keep them competitive, and in 2023 that was something like 4.3%.

For investing in the future to be possible interest rates must essentially be low.

I've thought a little about this problem, because recently we had situations where we simultaneously had inflation and needed investments to produce products in new ways to counter that inflation, and this obviously leads to a situation where it's difficult to get out of the problem. If we increase the interest rates then we stop the inflation, but the interest rates will be too high for investments to counter them. Concretely: Northvolt was trying to do American-style doomscaling and then interest rates went up, so they went under.

I believe that there is a solution: giving the central banks the additional tool to set a mandatory savings fraction of wages-- that is, that the central banks are allowed to set a fraction of wages that must be saved, and which may be invested or used to start a company but which isn't allowed to be used for consumption.

If you then have inflation and consumers are bidding over each other for goods and driving up the prices the central bank can increase the savings fraction without changing the interest rate. So plausible, in case of inflation you'd look at the need for capital to get out of it: if there's no need for capital to build new things and get out of it, then you just increase the interest rate, if there is, you increase the mandatory savings rate.

I thought about voluntary solutions, but suppose that we consider a savings pacts-- i.e. ordinary people get together and agree to all save a certain fraction of their income, then this drives down prices, so whoever deviates from the pact gets so much goods that he's really happy with what he gets for his money. Consequently such savings pacts are unstable and the savings pact must be mandatory.

I also think this is especially right for Europe. I calculated that if the central banks set this at 5% then this is enough for Draghi's €800B of needed investment, but it's obviously also applicable to the US if the US wants to transition to EVs, and now you have even higher interest rates than we do, so this policy might actually be the right thing for you too.

BoiledCabbage|7 months ago

Not to pick on you, but you stared your pay with a series of trivia steak arguments - but all examples of things I see repeated with little consideration.

> Yes, but companies run for investors will always have to pay investors, so it would have either been a buyback or dividends.

Your argument here is that the pivot two things companies can spend money on is dividends or stock buybacks? An incredibly false choice. They can also clearly invest in staying competitive.

> When interest rates go up, companies end up competing with government bonds, and they must give dividends that keep them competitive,

Why do you think they must do this? These aren't bonds - people aren't looking to park money at a risk free rate. They are stocks - different investments with different expectations. Setting the expectation of one based on the other is false. They should be ensuring the can keep with with short term growth of more than 4% per year non adjusted, which should be easy in an inflationary environment.

And let's dig further into what you said about this "must". Must implies no other reasonable option - the consequences of anything else would be to negative. So when you say they must do buy backs or higher dividends, I ask "or else what?". Simply put, what hairband is they don't? The company doesn't fold. Consumers don't suddenly stop buying their products. What actually happens that they need to avoid?

Not much really much of note really. They say/signal "instead of giving you this money right now, we're going to invest it to remain competitive and more productive in the future".

If some investors don't believe them or doubt want to wait the stock price dips for some period of time and then rebounds as those investments become realized with increased efficiency and superior products.

> For investing in the future to be possible interest rates must essentially be low.

Finally this is wrong. It doesn't require low interest rates is you're flush with cash. If you've given away all of your cash then yes you need to borrow to invest. But if you have tons of cash you don't need to borrow to have cash.

owebmaster|7 months ago

> Yes, but companies run for investors will always have to pay investors

> I believe that there is a solution

If changing the first is not your solution, you have no solution.

OP was saying that US companies will keep losing market until they are completely outcompeted. Finding a way to win this competition while keeping "investors" pockets full is impossible.