What Corporations Did With Their Tax Cuts

There were a few major topics identified when we first set out to analyze the effects of the 2018 tax bill. The link to the original post can be found (here).

One major topic was how corporations would handle the extra cash coming their way. One year out, we have some evidence as to know their behavior. A recent Bloomberg story identified analysis by Citigroup that showed corporations have spent more on stock buybacks than on capital expenditures (story here). This is the first year since 2007 that this has happened. 

We mentioned in our original post how wages, stock buybacks, dividends, and capital expenditures would show the intentions of the executives of US corporations. Here is some data

- Wages grew 3.2% in 2018. That is the highest annual gain in a decade. CNBC story here.


- Stock buybacks increased to over $800 billion. That is an increase of 60% over the 2017 total of $500 billion. This happened with a stock market that ended the year 5% to the downside. (Bloomberg)

- Capital Expenditures increased $100 billion from $600 billion to $700 billion.  (Bloomberg)

- Dividends increased 10% to $450 billion from $400 billion in 2017 (Bloomberg)

These numbers tell a strong story about how corporations used the extra revenue from the tax cut. It is not a healthy story. A higher than normal percentage was dedicated to buybacks. On the one hand, having that as the reason for rising earnings and stock prices is not a long term recipe for success for investors. Corporate America used the tax cut to buyback stock to boost earnings per share that inflated bonuses while wage growth was a paltry 3%. On the other hand, it is positive news for all those execs whose bonuses are tied to earnings. It also stemmed the slide in the stock market.

Corporate America needs to take the infrastructure opportunity coming and invest those tax dollars in its employees and products.  


** This blog is used for opinions and ideas and should not be used as a direction to act without doing your due diligence.**

American vs Chinese Capitalism

With capitalism starting to take more of a hold on the Chinese community, there are some growing issues that butt up against its limits given its political structure. Reports are showing that more and more wealthy Chinese are leaving the country to pursue life with better benefits outside of making money. There are also news reports showing a higher discontent level by ordinary Chinese citizens with the fact that even though Alibaba is a Chinese company, they are not allowed to purchase shares. These two examples show that there might be a ceiling in regards to how far capitalism can reach in a communist centric political system.

In the last few years, it has been well documented that there are a large percentage of wealthy Chinese citizens looking to move away from China. This is not surprising. It is because these families have reached a point where the utility of making another dollar is less important than the utility of social or educational benefits found elsewhere. This can be seen as a direct result of the regulations put on the society by China’s communist government. Until the government is able to change some of its social policies (whether it’s education, environment, freedom of speech), this exodus will continue to grow. Maybe the Chinese government is ok with these people leaving as it would create job openings for other Chinese. But when the population sees the trend, they will probably be motivated to move on as a whole, which could be detrimental to the political stability of the country.

This week, Alibaba will be going public. But with investment regulations being so tight for for the non-wealthy in China, they are unable to invest. This is maddening to some, as Alibaba is considered a main Chinese company. This issue could create some unrest within the investing community in China, as the pride of having a company like Alibaba have more of a foreign ownership hurts the pride of the country. The following Bloomberg article (link here) spells out the issue more.   

Both of these issues should be taken as reminders as to the limits capitalism has when operating under a political system like China’s. A country should never want its successful, rich citizens to leave. It should also give the general public the same access to their own companies stock as the wealthy do. Only then will these issues stop.

A special thanks goes out to the American way of capitalism. It is not perfect by any stretch of the imagination. But it does give access to those who desire it most, unlike other countries.

*This is an opinion piece. *

This Week In Bitcoin, 3D Printing, Wearable Tech, and Crowdfunding

As always, Twitter is a great way to check up on each of these exciting breakthrough areas. Just hashtag each of them and get a wealth of information. Some of what was found to be important is below:

Bitcoin

- Marc Andreesen discusses Bitcoin per Techcrunch article here.
- IRS to tax Bitcoin as property, not currency. The Bloomberg story is here.
- Current price of Bitcoin (per Coinbase) is $517.00


3D Printing

- Crain's Chicago Business article on how 3D Printing is revolutionizing surgery. Story here.

Wearable Tech

- Wearable Tech "energizing" battery industry with possible $70 million boost. Recode story here.

Crowdfunding

- Reminder of benefits from crowdfunding not all it's cracked up to be (ex. Facebook purchase of Oculus). Pando article here.

Google Buys Nest....Must Have Read Our Previous Post :)

It was announced today that Google has purchased Nest, the thermostat and smoke detector company for 3.2 Billion dollars. The Bloomberg story can be read here. The reason for the purchase was to expand its device inventory.

It is a very welcome sign to see companies like Google use its resources to purchase companies like Nest. The tech know how that Tony and his team have is second to none. It makes one wonder what the conversation was like between Google and Tony. What is it that Google have in mind that got Tony to sell is intriguing. Being that Tony has worked with tech heavyweights before will make his group less afraid of the purchase. One other neat aspect of mergers of this size and capability is that there will be some employees who will step out on their own and have the knowledge base of working with Tony and Google with them.

On November 2, 2013, KVCC had spotlighted the CEO of Nest, Tony Fadell, as its Person of The Week. That post can be read here.

KVCC Person/Group of The Week

Each week, a person or group is promoted for their work in creating or improving a product or service. If Keane Venture Capital and Consulting has any relationship with the person or group, it will be disclosed. The weekly highlight does not mean that KVCC is recommending a purchase of a product or service. The article is not sanctioned by the individual or group.

This week's Person of The Week is Larry Fink. Mr. Fink is the CEO and founder of The Blackrock Group. His leadership of the firm as well as outlook on the global economy is second to none. He recently was on Bloomberg's Market Makers with Eric Shatzker and Stephanie Ruhle (link here) and spoke about macro events that will shape the global economy in the next year. It was brought up in the interview that he is still advising 100% stake in equities for the current time and has been of this opinion for at least two years. Imagine the return if you followed his advice. 

At one point this year, Mr. Fink was considered for top governmental posts such as Treasury Secretary or head of the Federal Reserve. He does work very well with government officials on both sides of the aisle. When looking for a leader in the finance industry, the search stops when Mr. Fink is found. He doesn't put himself or his ego in front of his company or business. This puts his opinion in good standing with analysts and customers. There is a trust level that is rarely seen.