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Erik Paulsen Congratulates You On Your 401K - But Hold On...

Category: Economy
Posted: 04/20/18 16:32

by Dave Mindeman

A tweet from Erik Paulsen:


@RepErikPaulsen

Have a 401(k)? #TaxReform is working for you. Learn how stock buybacks are good news for the more than 50% of American households that own stock:


Then he linked this site: Buybacks are Great for Working Americans

The reasoning....

Workers benefit when stock values rise. Stock buybacks increase the value of retirement accounts and personal equity holdings. If investors continue holding stock instead of selling it back to the company in a buyback, its value will increase because there are fewer shares in circulation. Higher stock values increase the funds in retirement accounts, boosting workers' retirement income.

Another line of reasoning is that stocks permeate retirement plans.

"First, investing isn't just for the wealthy. Over half of American households own stock, either directly or indirectly. In fact, worker retirement accounts (company pension plans, 401(k)s, IRAs, etc.) hold 37 percent of all U.S. corporate stock."

OK - that may be true, but does it really benefit the American worker and middle class that much?

Color me skeptical. Even though 37% sits in retirement accounts that still leaves the overwhelming majority sitting in hedge funds, corporate buybacks, and wealthy individual players.

With a 401(K), you can have some limited control over what happens to the stock but most of it is in mutual funds, which means some Wall Streeter is managing your money. And they are not going to have the same profit incentive to make that money work as they would for a wealthy client who expects big returns. More often than not, your money manager will use a safe slow growth mutual fund with limited risk and unable to take advantage of market swings. Which is good safe management, but not something that will benefit greatly in the current environment.

So let's talk about those buy backs. Why do corporations buy their own stock back. Well, it turns out (surprise), it is mostly for selfish reasons.

1. Dividends. For a company dividends are a means of giving stock value but it is also a "cost of equity" - meaning they want to give dividends as a reward for shareholders, but if they have fewer shares to pay dividends on, they can keep the excess money.

2. Preserving the Dividend. When a company has to cut back on its dividend, the share price will usually take a big hit. If the company buys back its shares in lieu of a potential dividend reduction later, the share price can be maintained with that reduced "cost of equity". The shares bought back can then be reissued later with the potential for making a profit.

3. Undervalued Stock. Companies will buy back shares at times they think their stock price is not reflecting its worth. Share buybacks can often be reissued at a higher price when the stock comes closer to its value. The company gains the profit.

4. Earning Per Share. Buying back stock makes the stock more attractive because fewer shares in the marketplace automatically increases the earnings per share value. Profits can be the same but when extrapolated over fewer shares, the EPS looks great to investors. Also, by buying back shares, it can also be viewed by the market that management has enough confidence in the company to reinvest in itself.

*************************************

So, as you look at those advantages, 401K's get a bit of a boost, but just like everything else involving this tax cut, the big money is made by the Wall Street players and their wealthy clients. Corporations aren't doing this for your benefit, they are doing it first and foremost for themselves.

When Erik Paulsen congratulates you on your 401K value, he is not telling you the whole story.

He never does.
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A Closer Look At Those Corporate "Bonus" Announcements

Category: Economy
Posted: 01/28/18 09:12

by Dave Mindeman

Grover Norquist's Americans for Tax Reform is keeping a running list of American companies who are adding employee benefits "because" of Trump's tax plan.

So far they list 270 companies - affecting 3 million Americans.

Let's put that in a little more perspective.

1) The American workers getting these benefits is less than 1% of the population.

2) Of the 270 companies listed - 101 of them are banks. The banking industry has had a particularly good year and generally would be giving out bonuses anyway, as is the custom. But tying it to the Trump tax plan makes for good PR and political clout as Trump continues to pursue deregulation in the industry.

3) 167 of the 270 companies will be giving one time bonuses of $1,000 or less. Which in the big scheme of things is a lot of money in the aggregate but pales in comparison to the ongoing company savings.

4) 12 companies gave larger bonuses of up to $2,000.

5) 49 companies increased their minimum wage to $15 per hour. Now that may seem generous also, but consider that minimum wages are rising across the country and the $15 standard is a basic goal. These companies just decided to give Trump the credit for the inevitable.

6) 9 companies increased their 401(K) contribution which is a more significant long term benefit.

7) Every public utility company in the list noted (with press releases) that all savings from the tax plan will be passed on to their customers - which, ironically, they would have to do anyway as a public non-profit.

In this list of 270 companies (which again is a very small microcosm of corporate America) there were other oddities.

A company called Jones Auto and Towing was included in the list with a press release that stated: "Thanks to President Trump we will be hiring 2 new full time employees! #MAGA".

The College of the Ozarks announced a $204 bonus for employees. (Why $204????)

Minnesota's Ecolab announced an additional $25 million in charitable contributions - which would make tax sense because beginning with the new tax law, charitable contributions will have less benefit.

So, these 270 companies, for the most part, are just doing some pro-Trump public relations. Granted, the employees ARE getting a needed benefit, but when you consider that the tax cut is permanent while personal tax cuts are temporary - this one time largesse doesn't quite stack up as the big giveaway it is promoted to be.

There is one notable exception to all of this:

APPLE.

"$2,500 employee bonuses in the form of restricted stock units; $30 billion in additional capital expenditures over five years; 20,000 new employees will be hired; increased support of coding education and science, technology, engineering, arts, and math; increased support for U.S. manufacturing."

Apple is one of the few major companies that is doing what the tax plan intended. They are bringing money back from overseas and actually investing it in a notable expansion plan. They also plan to upgrade our education system where they can.... and they are building a second major plant. It was impossible to find another company in the entire list of 270 which even comes close to this type of investment.

Which proves that Trump's master plan is just another dud. There will be short term benefits which I am sure he will be happy to extol, but this short term gain could end up being another heavy downturn later when the glow of tax reform sifts into reality.

All of these corporate announcements, a small list of companies that it is, are just a distraction from the massive corporate giveaway that excretes from this legislation. It is another explosion of income disparity.

82% of benefits of this tax plan go to the richest 1%.

Trump is pro-business alright - but more precisely, he is pro wealth.
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Gimmicks, Games, and Greed

Category: Economy
Posted: 05/09/17 14:06

by Dave Mindeman

When Republicans are in charge of the legislature, we seem to get subjected to the most ridiculous budget gimmicks and games.

Even though the GOP controls both Houses of the legislature, they can't send Governor Dayton a unified budget. What is that about? Can't they figure this out between them. Do they have to send these confusing mixed messages?

And what kind of game are they playing by send up their budgets in the dead of night? Do they like the intrigue? Are they afraid of what might be seen in the light of day?

It can never be simple. Especially when Kurt Daudt is in charge of the House. He has to make it complicated. And he has to make it impossible for the Governor to be involved in a fair negotiation.

When their is a choice, and there always is a choice, between up front negotiations and confrontation, Daudt always chooses the latter.

But good feelings seemed to be abandoned as evening came. After dark, with no budget hearings or advance notice, the Legislature finalized most of their budget measures for votes as soon as Tuesday, the precursor to delivering them to Dayton. The governor found out about the move Monday night from aides monitoring Twitter. Specifically, legislative leaders had members of joint committees negotiating compromises on the budget sign off on GOP-written versions of the bills.

No outside input. Communication on Twitter. And dead of night sign-offs.

This is a new game, even for Republicans.

And the end result is trying to ram a budget through to get tax cuts to fuel a gimmicky budget which leaves out a number of priorities.

Why do we ever put Republicans in charge of anything?

It is always a disaster. Gimmicks and games - the Republican way.
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