Even Goldman Sachs Wants Companies to Stop Buying Back Stock

Goldman SachsArguing that US equities “look expensive on most metrics,” Wall Street uber-bank Goldman Sachs has issued a note recommending that companies stop spending cash buying back their own stocks:

We forecast buybacks will surge by 18% in 2015 exceeding $600 billion and accounting for nearly 30% of total cash spending. We recognize activist investors often advocate for firms to return excess cash to shareholders via buybacks. Tactically, repurchases may lift share prices in the near term, but in our view it is a questionable use of cash at the current time when the P/E multiple of the market is so high.

You know: buy low, sell high, not the other way around.

Of course, Goldman doesn’t go so far as to recommend that companies reinvest their cash in their own businesses—there are no fees for Goldman to earn off of that—instead, they’d rather their profits be spent on mergers and acquisitions, the investment bank’s bread and butter. But it’s at least interesting to see even Goldman questioning the wisdom of stock buybacks.

Goldman points out that companies have exhibited particularly “poor market timing,” with buybacks last peaking in 2007 at 34 percent of cash spent, just before the Great Recession market crash. So much for shareholder value maximization.

U.S. Paid Vacation Standards Totally Suck

Paid vacation days

The US is the only wealthy nation not to legally mandate paid vacation. (Source: CEPR)

There are a lot of great things about being an American, but our pitifully stingy paid vacation day policy is not one of them.* Of the 21 richest countries in the world, the U.S. stands out as being the only one not to legally mandate a minimum number of days a year of paid leave.

Absent a government imposed standard, one in four Americans get no paid vacation and no paid holidays at all. On average, private sector American workers receive only ten days of paid vacation and six days of paid holidays a year, less then the minimum legal standard in every other wealthy nation save Japan. But of course, our vacation gap is just as glaring as our income gap, with low-wage workers receiving an average of only four days of paid vacation a year compared to an average of 14 days for high-wage workers.

And what do American employers reap from their stinginess? Lower productivity:

Research synthesised by the International Labour Office in 2011 found that in many, if not most, industries in the US, shorter hours were associated with higher rates of output per hour. According to an analysis of 18, mostly European, OECD member countries, which explored the degree to which longer annual hours since 1950 had been associated with per-hour productivity, the responsiveness of productivity for a given increase in working time was always negative. When annual working time climbed above a threshold of 1,925 hours, the research found there was a nearly 1 per cent decline in productivity for every 1 per cent increase in working time.

So the lack of adequate paid vacation time not only makes American workers less happy, it makes us less productive. And it also inevitably inflates unemployment and depresses wages. Think about it: if U.S. employers were required to give all their workers 20 days a year of paid vacation (the European Union’s vacation floor), they’d have to hire more workers to fill gap, tightening the labor market in the process.

It’s way past time for the federal government to set minimum vacation standards.


* And in case you’re wondering, we have no set number of vacation days here at Civic Ventures. Nobody punches a clock, and nobody keeps track of hours. As long as we get our work done we can take off as many days as we want.

Daily Clips: June 3rd, 2015

A year after Seattle’s minimum wage, the sky remains aloft
Working Washington

Our friends at Working Washington have compiled a great set of articles relating to the minimum wage increase in Seattle. As they correctly note, most critics’ arguments against the landmark law

…are pretty much the same stuff as business lobbyists have been saying since child labor laws were passed. And yet they were treated as credible sources in Seattle’s public debate.

Now, a year after Seattle’s $15 minimum wage was signed into law — as cities across the state and across the country move to pass $15/hour laws of their own — it’s time to take a look at how those predictions are holding up.

Spoiler: the predictions have not been holding up…at all. Check out this article and see for yourself.

California Senate votes to raise smoking age to 21: It’s really incredible that cigarettes are still available to 18 year olds in 2015. Thankfully, the California Senate is trying to raise the smoking age. It’s a pretty darn good idea, considering that tobacco-related disease killed 34,000 Californians in 2009 and cost the state $18.1 billion in medical expenses, according to studies by UC San Francisco. + Read More

St. Louis Mayor Proposes $15 Minimum Wage

If you're convinced that raising the minimum wage will make poor people poorer, you need to question your belief system.

The Fight for $15 is no longer contained to the crazy Left Coast!

Looks like this $15 minimum wage thing has some legs:

St. Louis Mayor Francis Slay is looking to raise the minimum wage in the city to $15 an hour by 2020. Missouri’s current minimum wage is $7.65 per hour.

Slay’s proposal, expected to be formalized in a bill before the Board of Aldermen by next week, would include exemptions for small businesses that employ 15 people or fewer and those that do less than $500,000 in annual sales, Alderman Shane Cohn, who’s expected to sponsor the legislation, said in an email.

A couple years ago, when a $15 minimum wage was first proposed, critics argued that it was crazy. Last year, when Seattle became the first city to pass a $15 minimum wage, critics said that we were crazy. When San Francisco and Los Angeles followed suit, critics said the whole damn Left Coast was crazy.

But as 51-year-old McDonald’s worker and Show Me $15 member Bettie Douglas points out in a press release, this is St. Louis, Missouri—smack dab in the middle of the country:

“The Show-Me state just showed that real, life-changing victories are possible when we stick together. By standing up and speaking out, we are on the verge of making St. Louis the first city in America’s heartland to raise the minimum wage to $15 an hour.

… If we can win here in St. Louis, we can win anywhere.”

We certainly can.

Daily Clips: June 2nd, 2015

This astonishing chart shows how moderate Republicans are an endangered species
The Washington Post – Christopher Ingraham.

One doesn’t have to be a politico to see that ouur country’s politics have become more partisan. But, this phenomenon is largely a one-sided affair. As Thomas Mann of the Brookings Institution has described it,

Republicans have become a radical insurgency—ideologically extreme, contemptuous of the inherited policy regime, scornful of compromise, unpersuaded by conventional understanding of facts, evidence, and science; and dismissive of the legitimacy of their political opposition.

And, unfortunately for Republicans who want to blame increased partisanship on the left, the data supports Mann’s claim as well. Indeed, Kenneth Poole and Howard Rosenthal have developed a score of ideology based on voting, which shows that Congressional Republicans (especially those in the House of Representatives) have completely jolted from the political middle. I guess that’s what happens when you get to choose who votes for you. *cough* redistricting *cough*

Look at this graph below from Poole and Rosenthal’s latest work. It’s chilling to say the least.

Screen Shot 2015-06-02 at 9.14.31 AM

+ Read More

NRA goes after National Gun Awareness Day

Tomorrow, June 2nd, marks National Gun Awareness Day. This national campaign is organized by the Everytown for Gun Safety Action Fund, and they have asked Americans to wear the color orange to honor victims of gun violence. With over 30,000 people dying from guns per year in the US, such a day seems pretty understandable (if not imperative).

Nonetheless, the editors of the NRA’s digital publication, America’s 1st Freedom, criticized the gun awareness day as “pointless” and said “participating is an easy way of scoring points for being ‘socially conscious.'” Couple things. America’s first freedom? Really? If my counting is correct, I believe the right to bear arms comes second. Also – has the NRA shifted so far to insanity that merely displaying a “social conscious” has become frowned upon? Shouldn’t an organization which prides itself on gun safety embrace a gun awareness day?

Anyways. If you’d like to honor victims of gun violence, wear orange tomorrow. Exhibiting a little bit of empathy and awareness shouldn’t be a polarizing issue.

The One Thing That’s in Short Supply Is Demand

Money

Stuart Miles | FreeDigitalPhotos.net

According to the Wall Street Journal, the biggest problem with our economy is that there is too much of it:

The global economy is awash as never before in commodities like oil, cotton and iron ore, but also with capital and labor—a glut that presents several challenges as policy makers struggle to stoke demand.

“What we’re looking at is a low-growth, low-inflation, low-rate environment,” said Megan Greene, chief economist of John Hancock Asset Management, who added that the global economy could spend the next decade “working this off.”

… “The classic notion is that you cannot have a condition of oversupply,” said Daniel Alpert,an investment banker and author of a book, “The Age of Oversupply,” on what all this abundance means. “The science of economics is all based on shortages.”

Uh-huh. Of course, there are two obvious flaws in this classic notion: 1) The science of economics is not all based on shortages; and 2) Economics is not a science (at least, not a hard science like physics or biology).

The big problem with our economy is not that we have too much stuff, but that we have too little demand. And the main reason we have too little demand is because the one thing the WSJ crowd insists we can’t have enough of is profits. And record profits have come at the expense of wages. Which means most people have less money to buy stuff. Which means less demand.

Our economy is out of balance because we chosen to unbalance it. We have chosen to cut taxes on billionaires and to deregulate the financial industry. We have chosen to starve our schools and to saddle our children with more than $1.2 trillion worth of student debt. We have chosen to erode the minimum wage and the overtime threshold and the bargaining power of labor. None of this was an accident.

And none of this will be fixed by pretending that economics is a hard science.

Daily Clips: June 1st, 2015

$15 wage would make a big difference to renters across US
The Seattle Times – Gene Balk.

In a fantastic article, which appeared on the front page of the Seattle Times today, Balk examines how a $15 minimum wage changes one’s rent as a percentage of their income. This aspect of the minimum wage is very important, he argues, because “[t]he cost of rent is at the crux of the fight for a much higher minimum wage.”

Balk compiled data from a variety of US cities to see where Seattle stacks up in regards to rent affordability for low wage works. See his graph below:

Screen Shot 2015-06-01 at 9.10.01 AM

Unfortunately, you see here that a minimum wage worker could afford

“an inexpensive apartment…in all but five of the cities in this group. Seattle is one of those five — rent would eat up 33 percent of income at a $15 wage.

While not perfect, Balk emphasizes that an increase to a $15 wage still represents “a much more reasonable level of rent burden than the 45 percent under the current minimum.

The continuing frugality of American consumers: Six years after the recession, high earning Americans ($100,000 to 249,999) are still making calculated decisions on their discretionary spending. As the author notes, “these consumers…are “feeling squeezed” primarily because their spending power is curbed by sluggish income gains.”

The 2008 recession certainly wasn’t the starting point of such sluggish income gains. Rather, the lackluster wage growth is merely a continuation of a three decade long wage stagnation that has hit the vast majority of working Americans.

The tentative economy: Very similar to the piece above, Robert Samuelson at the Washington Post worries about the US economy and its stumbling recovery. His main explanation for this economic reality? Our collective hangover from the “Great Recession”. Here lies the crux of his argument:

The financial crisis and Great Recession have left a thick residue of anxiety. Companies and consumers responded by restraining spending, which (of course) weakened the recovery. The efforts of firms to protect themselves from this weakness in turn shifted risk onto consumers, making them more cautious. They aren’t terrified, but they aren’t exuberant either.

Vermont says no the anti-vaxxers: Vermont Governor, Peter Shumlin, made his state the first to remove philosophical exemptions from its vaccination law. The Green Mountain State used to be one of about twenty states that allowed for philosophical exemptions in regards to vaccination. Not any more. Chalk this up as a victory for science.