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[photo:] River
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Month: February 2010
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Faux Manufacturing Nostalgia
Politicians, writers, and policy intellectuals talk a lot about “good manufacturing jobs” and how much “working families” have been hurt by the decline in the availability of such jobs. But back when such jobs were much more plentiful as a proportion of the total workforce, the social critics of the time were by no means uniformly enthusiastic about them.
Dividend Cuts and Interest Rates
Recently I wrote about how Interactive Brokers was offering to lend money at 1.25% in order to purchase stocks yielding 5% or more in dividends. I was struck by the low rate that they were able to offer as interest and the fact that there was a large universe of large companies offering such high dividend payouts (and not just companies that had a stock price decline with a dividend cut yet to follow so it was unusually high relative to the stock value).
To give Interactive Brokers some credit, the ad was kind of “tongue in cheek” in that it was made to look like it was written on a napkin like the classic business plan but there were enough elements there to get me thinking about what an odd state of affairs this represented.
Just recently this model started coming under siege. The Fed recently began tightening interest rates, increasing the discount rate to 0.75% from 0.5%. While the Fed has been denying that this is part of a long term policy shift, the markets have started to feel otherwise, as markets went down and yields increased on government debt. This won’t directly impact the 1.25% that they are able to borrow for on the “napkin” today, but it seems to be trending that way, even if this is just a first step.
On the other side, 2 large European firms just cut their high dividends. Daimler Benz (DAI), manufacturer of Mercedes autos, suffered a loss and canceled their dividend, leading to a drop of 4.6% in their stock price in one day. Societe Generale, a large French investment bank, cut their dividend from $1.2 Euros to $0.25 Euros (a drop of 79%) and their stock also fell 7.2% in a day.
The question is – how can companies pay out such high dividends in a sustainable manner when there isn’t much growth in the world economy and many of them are in mature industries? While 2 stocks don’t constitute a balanced statistical survey, they show that dividends are a function of profits and long-term profit view and to talk about them in an “historical” view is backwards.
The other side of this is that investing for yield in such a volatile area as stock prices shows that not only did the long term value of the income stream from dividends drop significantly (in the case of Daimler it dropped to zero, and for Societe it dropped by 79%) but then you can also see the impact on the underlying value of the shares, which dropped 4.6% and 7.9% in ONE DAY.
Cross posted at LITGM and Trust Funds for Kids
Honestly, Why Is It Always the IRS?
Why do these murdering nut jobs so often target the IRS?[h/t Instapundit]
At first, one might presume they do so out of ideological resentment, but as I noted in my previous post, these nuts tend to pick and choose from various ideologies depending on what is best for them at the moment. If so, why do so many of them perform their final detonation at the IRS?
I think it is because the IRS is the one institution that no one can ever escape.
You can’t escape death and taxes, and the IRS is always the latter and sometimes the former.