No MAGA For The Donald: The Problem IS Bad Money, Not Bad Trade Deals, Part 4

Yesterday’s 600 point rip on the Dow proves exactly why the D0nald has no prayer of making MAGA. Namely, because corporate America is being strip-mined by the rogue casino operating in the canyons of Wall Street.

That is, speculators and algos totally dominate the price action in the equity markets, and have now become absolutely tyrannical in their incessant demands for stock buybacks and other financial engineering based injections of cash back into the casino. And those disgorgements, of course, come at the expense of investments in plant, equipment, technology, operating efficiencies, worker skills, product development–even marketing and sales.

You need not look any further than the pathetic denouement of the once mighty GE. Since the turn of the century its market cap has fallen from $600 billion to $60 billion, and it now actually teeters on the edge of bankruptcy.

During that dismal 18-year collapse, however, it was run by the best financial engineers money could buy including Jack Welch, Jeff Immelt and John Flannery. Among them they managed to plow $221 billion into stock buybacks and dividends since 2000—a figure that was nearly identical to its cumulative net income of $225 billion over the period.

In other words, essentially they did not invest a single dime of GE’s 18-year profit total in internal growth; 98.2% got cycled back to Wall Street.

In the short-run, of course, these misallocations gave traders an excuse to bid up GEs stock, unload their winnings and then rinse and repeat as the company stumbled from one financial engineering gambit to the next. But at the end of the day the company failed to invest in sustainable growth strategies, ending up a mere shadow of its glorious past.

GE Market Cap Chart

Needless to say, GE is no aberration. The Fed’s baleful regime of Bubble Finance systematically induces corporate executives to make drastic investment and resource allocation errors in the process of feathering their own stock option nests.



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