Lagarde Hikes Seventh Time. Calls Inflation ‘Too High For Too Long’
"The inflation outlook continues to be too high for too long," the ECB said Thursday, in the very first sentence of the new policy statement.
Consistent with market expectations, Christine Lagarde delivered a 25bps rate hike, a step down from the half-point cadence the bank favored for most of a tightening cycle that'll be a year old in July.
As a reminder, the ECB did resort to 75bps intervals on two occasions last year in its rush to make up ground. Thursday's 25bps increment was the smalles
I’m not a fan of the “Greedflation” term, but I think every mention of the wage-price spiral, our traditional inflation boogeyman, needs to be matched by mentioning the “profit-price spiral,” where prices are raised, employment and investment are cut, and buybacks/M&A are increased, leaving EPS (and its primary dependents – stock prices and executive pay packages) safely on their now longstanding glide paths.
Yup.
One of the most obnoxious attitudes in our currently (acceptable?) form of capitalism is the value of productivity. Originally, the idea of productivity was that the economy would be better off if the same number of workers, working the same number of hours this year, compared to last year, would produce more output. The seers believe that this higher output will cause all consumers to somehow benefit. In fact, it seems clear to me that the main beneficiaries of higher productivity are the top managers and stockholders of companies that will enjoy higher profits from more goods produced by a shrinking workforce forced to work harder and longer. Cutting costs by reducing labor is relatively easy to accomplish and, in the short-run, at least, will make the rich, richer.
A monetary metric that measures productivity, compares labor costs to output, as opposed to the old hours worked measure. In this version of the idea, anything that lowers the cost of labor such as outsourcing, substituting capital for labor, or the restructuring of jobs that allows the hiring of less skilled, cheaper labor, will result in a rise in productivity. AI is in the process of being a big facilitator here … “thinking” machines taking the place of workers. Again, who does this help? Primarily, companies that will see profits rise. It doesn’t help the total workforce and might easily result in a decline in the effective income of consumers.
But Lucky One, with interest rates so much higher, Company management NEEDS to find other ways to fund share buybacks.
@derek, we don’t say “share buybacks”, we say “returning cash to owners”.
That language irritates me. When a company buys back shares, it isn’t genuinely returning cash to shareholders, because 1) selling shareholders have to give up shares of equal value to cash received, and 2) holding shareholders get no cash but own a company with fewer assets. Dividends, on the other hand, are genuine return of cash to shareholders.
I think we’re talking about the real owners, not random people that have a few shares.
No argument from me, sir. A complicating factor is the net versus gross buyback numbers. Which in many cases means how many shares are being bought out of the market to offset share-based compensation, like vested stock and options
I’m not sure how to assess the impact on the owners of the company, us dumb shareholders. Employees need to be paid one way or another. Dunno. What do you think?