JP Morgan Announces Massive Shrinkage. Why Ever Could That Be?

I have made special and numerous mention of corporate share buybacks over the last several years, and I have also noted why we are seeing an usually large amount of share repurchases rather than investment in growth and jobs.

Well, hot off the wires just now, JP Morgan announced another multi-billion dollar share buyback - $15 billion to be more precise. Our government has attacked and shat upon no industry so much as the banking industry and gone on to codify the rhetorical drubbing in the form of the Dodd-Frank banking "reform" bill. Well, the inevitable and entirely foreseeable has now happened. With nary a growth prospect and a stagnant, strangled business landscape, JP Morgan is returning - entirely responsibly and justifiably, I might add - oceans of unneeded capital back to its shareholders so they can seek higher returns with it in some industry and/or some country that doesn't crap all over investment capital.

UPDATE: US Bancorp announces an @$3 billion buyback.

McDonald's In Massive Capital Giveback

I predicted, back in 2009, that companies would shrink - via buybacks and dividends - rather than invest and grow aggressively because of the tenor, tone, and actions of the Obama administration and the Pelosicrats in Congress.

As a grace note to all this, let me point out that many large companies, Cisco and IBM for example, have announced large increases in their stock buyback programs to the tune of billions of dollars.  This means that there is a higher return to shrinking their capital base than to expanding and hiring.  That is the heart of the structural problem that Washington and Obama have created.  Until that reverses, we won't see any meaningful job creation.

I've chronicled this prediction along the way too.

Now, six years in, we still have corporations that see no compelling prospects to the point that they'd rather shrink than grow and invest.

McDonald's on Wednesday said it plans to return $18 billion to $20 billion to shareholders between 2014 and 2016 through a combination of dividends and share repurchases.

More cash in the pockets of shareholders.  (And this from a company with a black CEO that overwhelmingly caters to minorities and poorer people.  Not fitting the narrative.)

Less Than Six Months Left to Stick It To Max Baucus!

In my ongoing efforts to give the likes of Max Baucus a lesson in supply-side economics, here is an except from a letter I posted today to the Chairman of a publicly traded company in which I own a decent stake...

"Turning to slightly longer term considerations, the 15% tax rate on dividends established by the Jobs and Growth Tax Relief Reconciliation Act of 2003 will likely sunset at the end of this year barring action from Congress to extend it. In order to return cash to shareholders in the most tax efficient way, we encourage the Board of Directors to consider altering its dividend policy if the current dividend tax rate is indeed allowed to expire. In such a case, we recommend that the Board 1) declare a special dividend equal to 3 times the normal annual dividend...to be paid before the sunset provisions take effect, 2) cease regular dividend payments in 2009 and beyond, and 3) commit to a share buyback program sufficient to retire at least 1% of the outstanding shares for every year in which regular dividends are not paid, subject to the share price level."

I'll keep readers posted as to whether management is on board.

Background here and here and here.

One More Time...Why We Have 10% Unemployment

I am not happy about being right about this (nobody wants a healthy economy more than me).

Our problem isn't the presence, lack of, or size of any stimulus, interest rates, or any such obsessed over aspect of the macro economy.  Our problem, as I've been saying, is fear and uncertainty.  Washington DC and our President are running roughshod over American business like Sherman through the South.  Profit is viewed with hatred.  Businesses are either 1) scared they are going to get taken behind the woodshed like the credit card industry, 2) simply too uncertain about major changes shaping up in Congress, like cap and trade which would raise the cost base of nearly every company in America, or 3) fed up at the attacks and the anti-business rhetoric and standing pat.  American Business is hiding under their desks.  They could be hiring and growing but we elected fools who want to beat them into submission - it is as simple as that.  Enjoy your economy America.

P.S. As a grace note to all this, let me point out that many large companies, Cisco and IBM for example, have announced large increases in their stock buyback programs to the tune of billions of dollars.  This means that there is a higher return to shrinking their capital base than to expanding and hiring.  That is the heart of the structural problem that Washington and Obama have created.  Until that reverses, we won't see any meaningful job creation.

UPDATE:  Here is our President today on the subject.  I'm sad to say he doesn't get it, he is not within 100 miles of getting it.  Finally, this all leads to the irony of ironies - that a President (and his party) who is (are) supposedly the second coming for the working man and the bane of monied interests is pursuing policies that are a disaster for the working man and pretty darned OK for the money class.  By driving businesses and entrepreneurs into the bunker, the DC Dems are choking off job creation in the crib.  Nonetheless, companies have a base level of business and are eager to sell into a global market outside the US that is hungry for growth and economic health, thus earnings are hanging in there and expectations are rising.  This has propelled the stock market.  The working man is SOL but investors are doing OK so far in 2009.  Like I said, irony of ironies.  This a classic manifestation of the maxim (and I will probably butcher it) that it is not that liberals aren't knowledgeable, it's just that what they know is wrong.