I see the head economist at Goldman Sachs (GS) is now forecasting the US economy will either be “fairly bad” or “very bad.” If his forecast proves accurate, what does that say about equity investors in general, who have carried valuations and equity benchmarks to new yearly highs? Does it also tell you Goldman’s economists and research teams are not on speaking terms?
As if public enterprises didn’t learn their lesson the first time (see our earlier article, The Folly of Share Buybacks), we are again seeing stepped-up buyback activity. For the S&P 500, during their latest reporting quarter, the firms in aggregate bought back $80.8 billion in common and preferred stock versus $67 billion a year earlier, a greater than 20% increase. As of the latest reporting period, S&P firms in aggregate have reported the following:
Interesting how cash dividends have deceased as a whole. Bristol-Myers ($65 MM), Deere ($117 MM) and Goldman Sachs ($182 MM) were a few paying lower dividends. The fall in long term debt issuance is a reflection of the build in cash resulting from increased free cash flow.
Disclosure: No positions
Earlier Post: The Folly of Share Buybacks
Kenneth S. Hackel, C.F.A.
President
CT Capital LLC
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With interest in stocks seemingly waning, a potential boost could be on the way-thanks to the U.S. Congress via financial regulation.
It is now a given that proprietary trading and derivatives activity are going to become a smaller part of financial firms balance sheets-effecting large investment banks and insurance companies. The benefiting outlet of such financial intermediaries could very well be their private equity businesses.
JP Morgan, for their 2009 fiscal year, reported about $80 billion in net derivatives receivables versus just $7.3 billion in private equity.
Goldman Sachs reports private equity as part of their $146 billion in alternative investments, and is probably no greater than 10% of that asset class.
Although a minority of the private equity assets of such firms are currently in publicly traded firms, that could easily change, given today’s low multiple valuations and the extended investor time horizon assumed in private equity deals.
To the extent such large financial firms are forced to curtail current lucrative areas as a result of new regulation and oversight, the beneficiary could very well be an increase in private equity and M&A activity, the result of which would be a positive turn in investor confidence, valuation multiples, and the cost of capital.
