Bobby: - I believe there is a case that "free cash flow" will be allocated to equity buybacks at the cost of reduced capital spending.
Corporate behavior is driven primarily by rewards from a) bonuses, and b) stock options, dictates that corporate governance by driven by the interests of shareholders notwithstanding.
New capital investment at this time would not boost equity prices because the world is awash in excess capacity. Product prices could be depressed by building of more excess capacity because competitors would have to jocky to keep existing market shares. If, therefore, prices decline, but new capital funding costs are added, earnings declines would result, to the detriment of bonuses, equity prices and, therefore, equity options.
I believe the corporate world is likely to sharply reduce capital spending. They will, instead, allocate "free cash flow" to equity buybacks. Its obvious that buybacks can immediately boost stock prices to the benefit of bonuses and equity options.
Economics 101 - greed drives all human decision making.
RH |
