Its debt surged to fund the share buybacks. And truckers ate its lunch. But don’t tell any of this to the “market.”
By Wolf Richter for WOLF STREET.
The first thing to know about Union Pacific’s earnings, which it released this morning, is that despite cutting its workforce by 17%, promising more layoffs in 2020, experiencing a 9.5% drop in revenues and a 10% drop in net income in the fourth quarter, the company blew $600 million in Q4 and $5.8 billion in the year 2019 on buying back its own shares, which it funded with $3 billion in new debt.
This comes on top of the $8.3 billion in share buybacks in 2018. Since it started repurchasing its own shares in 2010, fired up by the Fed’s cheap-money policies, its cumulative share buybacks have reached $34.2 billion:
Freight recession & truckers sap revenues.
Union Pacific was not immune to the freight recession, which began in January 2019 and got worse, with December dishing up a decline in shipments, except commodities, by all modes of transportation of nearly 8% year-over-year, the worst episode since November 2009, during the Financial Crisis.
For Union Pacific, freight revenues in Q4 2019 dropped 10% year-over-year to $4.85 billion, and total revenues fell 9.5% to $5.2 billion. For the whole year, revenues fell 5% to $21.7 billion.
Revenues by category in Q4:
- Agricultural products -2% (to $1.1 billion)
- Energy (coal, oil): -25% (to $838 million); this is in line with the long-drawn out collapse of coal, both for domestic use and export.
- Industrial: flat ($1.4 billion) in line with the stagnating industrial economy.
- “Premium” (intermodal containers, trailers): -14% (to $1.5 billion) worse than the freight recession, and a sign that truckers, which are in the same business, have gotten more aggressive and are eating its lunch.
Expenses drop, due to layoffs and lower fuel costs
Operating expenses fell 12% in Q4 to $3.1 billion. Various expense items dropped, including fuel expenses, which plunged 20% on lower price-per-gallon of diesel fuel and less freight to haul. In terms of dollars, the drop in fuel expenses amounted to a savings of $128 million in Q4, bringing total fuel costs down to $512 million.
But the biggest line item was the 18% drop in compensation and benefits. In dollars, compensation and benefit expenses fell by $231 million in Q4 to $1.05 billion. How is this possible?
Slashing headcount by 25%
Over the 12 months between Q4 2018 and Q4 2019, Union Pacific axed 7,133 employees, or 17% of its workforce, bringing its headcount down to 34,563 employees in Q4.
In 2020, it plans to cut another 3,000 or so jobs. Which would mean that over the two-year period through Q4 2020, the company will have axed about 25% of its employees.
Throughout 2019, there has been a series of layoffs at rail yards across the country, a few hundred people here and a few hundred people there. When word would leak out that Union Pacific was laying off people at a local rail yard, local news media would reach out to the company and get the prepackaged statement that would always cite its “Unified Plan 2020” and would usually include something like this:
“Union Pacific continues streamlining operations as part of our Unified Plan 2020 operating plan.” Then it would address the specific locations of the layoffs that the media outlet had inquired about, how those operations were being transferred to somewhere else, or were being consolidated into something else.
And it would add something like this: “These changes will improve operating efficiencies, helping us provide customers with safe and reliable rail service.”
Or something like this: “These steps are part of Unified Plan 2020, which streamlines operations as we ensure Union Pacific remains a strong and competitive company.”
This Unified Plan 2020, which the railroad announced in September 2018, is about how the railroad is restructuring its operations to run fewer trains, but with more cars, and bring up the average velocity, and have them “dwell” less time at the terminal, etc. “Precision-Scheduled Railroading,” as it’s called.
“The service design is reducing work that doesn’t need to occur and that’s eliminating jobs,” Union Pacific CEO Lance Fritz told the Wall Street Journal in an interview today.
The risk is that lousy railroad service is driving shippers “off the railroad and on to trucking,” a fear that CSX expressed when it discussed its operational restructuring, its revenue decline, and its workforce reductions.
And Union Pacific’s 14% decline in revenues in its “Premium” segment (intermodal containers and trailers) where it competes directly with truckers shows that some of its business has already been driven off the railroad and on to the highway.
But it wasn’t enough, and income fell.
Despite Unified Plan 2020, and despite chopping 17% of its employees, and despite lower fuel costs, and lower other expenses, it wasn’t quite enough to overcome the 9% drop in revenues. And operating income fell by 5% to $2.1 billion.
But then, the company added $3 billion in new long-term debt to fund its $5.8 billion in share buybacks, bringing its total long-term debt to $24 billion, and despite lower interest rates, its interest expense (which is not included in operating expenses) jumped by 16% in Q4, to $278 million, and by 21% for the year, to $1.05 billion.
And its net income fell by 10% to $1.4 billion in Q4. For the year, net income ticked down 1% to $5.9 billion. Which is roughly the same amount it blew on share buybacks ($5.8 billion).
For stocks, reality is irrelevant.
But “the market,” this mix of humans and algos, doesn’t actually care about reality, about dropping revenues, dropping income, layoffs, and about driving business from the railroad on to the highway. All it cares about is share buybacks and the illusion that share prices will rise forever. So today, ladies and gentlemen, the shares of Union Pacific [UNP] rose to a new high.
And despite the fact that this is a shrinking company with shrinking revenues, shrinking workforce, shrinking business, and shrinking income, its PE ratio rose to 22. This type of lofty PE ratio used to be reserved for companies with surging sales and profits. Now it’s reserved for shrinking companies with shrinking profits, which tells you what condition this market is in.
“Give Me a Growing Environment, It’s Easier to Run the Railroad,” says the CEO of CSX. Read… Railroad Pain: CSX Revenues Fall Below 2014. Workforce -7%. But Hey, $3.4 Billion in Share Buybacks
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Negative rates are coming! Load up on stocks and bonds!
….. so they say
For stocks, reality is irrelevant. Looks good on the next beer mugs. Waiting for them.
The mugs and the crash.
– Short term rates may become negative but it’s my personal opinion that long term will go higher. High enough that it will squeeze the life out of the (US) economy.
– My personal opnion is that we could see a MAJOR spike lower in (long term) rates and that then could be the very ultimate end of a 39 year bull market in government bonds. But it’s my opinion that we didn’t see the ultimate low (yet) in long term rates.
– “When the facts change, I change my mind. What do you do, sir?” J.M. Keynes.
Disconcerting factors on ‘corona’ virus:
-from Bloomberg: Several people who’ve died from a new virus in China didn’t display symptoms of fever, potentially complicating global efforts to check for infected travelers as they arrive at airports and other travel hubs.
In an interview with Caixin, Guan Yi, a Hong Kong University professor specializing in infectious diseases, feared that the scale of the Wuhan virus may be 10 times greater than that of SARS, adding that the situation left him feeling “powerless.”[..]He also explained that this new virus may prove more difficult to trace than SARS, which was chiefly transmitted by so-called “superspreaders.” So far, health authorities haven’t been able to trace the spread of the virus.
You left out Gold Negative rates will supercharge gold and silver
Wolf, how did you gather the guts to short THIS crazy market? I have lost my shirt already doing just that. Be careful my friend…. these are insane never before encountered times…there is simply NO precedent for $15T of negative yielding debt simultaneously coupled with unlimited CB balance sheet expansion….with a negative discount rate, the NPV of ANY investment with positive cash flows (eg dividends) becomes Infinite!
My short is down something like 2.5%. Meh.
You mean your tiny short of one share of SPY and one share of QQQ?
Now if you were net short 3X your net worth, THAT would be worth talking about.
Your rather pathetic point being “Wolf” has no “animal spirits” in him?
I am just guessing the company CEOs are gambling that the debt they are currently taking on now will in the near future have negative interest rates.
Or maybe the new debts they are taking on now are perceived to already carry negative real interest rates?
If so, these CEOs will be looked upon as geniuses for correctly interpreting the message being sent by central banker’s.
If they are wrong, they will be safely long gone by then.
Company CEO’s are gambling that they can get themselves large bonuses.
C-Suite and one to two levels below never suffer the consequences of their actions. Guaranteed Golden Parachutes.
Obviously the goal for years for too many has been, “Get as much money as I can and get out”. But to where, or into what, eventually, is just ignored. Many will then regret this, although most all will fail to see their own role in it.
Alternate facts will abound.
Everybody right, and nobody wrong.
I need to read this stuff. Seems like Fed is trapped. The thing that bothers me is their transparency they have been giving about rates. A quarter point hike for a test for the market could give them some more room. They could make comments afterward on why. Shrinking the balance sheet and hiking at the same time might have been the problem. I think they need to get creative. I’m not levered, like everyone else. Quarter point hike what could happen? Keep it on the balance sheet? Stir some buying of treasuries IMO. They have the Corona virus for cover. Potus would rail about it. If they do nothing this market keeps going. Too rich with leverage up here, I’ll bottom fish for awhile, or cash is trash and my kind of garbage.
Or they can simply end REPO and let rates float?
Compared to Tesla, Uber, Lyft, Netflix, Beyond Meat, etc., etc., etc.,…. it’s a bargain.
“And despite the fact that this is a shrinking company with shrinking revenues, shrinking workforce, shrinking business, and shrinking income, its PE ratio rose to 22. This type of lofty PE ratio used to be reserved for companies with surging sales and profits. Now it’s reserved for shrinking companies with shrinking profits,”
Was it ever not like this?
The “market” is and always has been rigged. Buy back share and stock price rises and executives get bonuses. We haven’t come all that far from the days of Tulip mania.
Except the tulip mania didn’t involve government printing massive amounts of debt, QE to infinity, zero interest rates, bailout after bailout, too big too fail, too big to jail and government buying private paper at par to keep the market “liquid”
Any “market” will always be dominated by the largest players…..
Thanks for the very good common sense article. The phrase “the illusion that share prices will rise forever”: how true it is. Up and up and up it goes. Where it stops, nobody knows.
From the article: “But then, the company added $3 billion in new long-term debt to fund its $5.8 billion in share buybacks, bringing its total long-term debt to $24 billion, and despite lower interest rates, its interest expense (which is not included in operating expenses) jumped by 16% in Q4, to $278 million, and by 21% for the year, to $1.05 billion.”
Change some of the terms and raise the numbers a million or so times, and you have the story of almost every ‘modern’ economy. This is insanity. A losing company makes cuts, and wonders why there is no return to profitability?
Then there is this positive outlook. “Delta Air Lines is giving its workers two months’ extra pay as a bonus for the company’s strong performance in 2019. It’s part of the company’s profit-sharing program.
“Delta announced it’s giving workers $1.6 billion in bonuses. That means every eligible employee will get a check next month for nearly 17 percent of their annual salary, which works out to two months’ pay.”
“Delta would be nothing without our 90,000 people. They deserve all the credit,” said Delta CEO Ed Bastian on LinkedIn.
Delta says the payout is a record amount for the company and the sixth straight year it has paid out more than $1 billion to workers.
The profit-sharing plan does not include Delta’s officers, directors and general managers. They will receive their own performance-based bonuses.”
Make a guess the recent fleet acquisition for Delta? (hint, it ain’t the Max)
Employees are their biggest asset. The Company is profitable. Imagine that.
WARNING….Off topic and Heads Up: (maybe this could be source for another article at a future time).
Speaking of cuts and the race for the bottom:
Just before I looked in on WS I read on CNN that _________, while in Davos, said he was looking at cuts to medicare and SS in order to start balancing the budget. _________ also stated that average family made an extra 10K this year due to policy and growth.
Stated in the CNBC interview: “I mean we’ve never had growth like this. We never had a consumer that was taking in, through — different means, over $10,000 a family,” he said. ”
Except cutting SS & Medicare won’t reduce the Deficit 1 penny because they contribute to the Deficit because they are self funded, as you probably already know. Ironically, cutting Medicare might INCREASE the Deficit because other healthcare options are much more expensive. In fact, we could save abt $2 for every $1 we spend expanding it to every single person in the United States.
Keeping the tax rate the same and decreasing SS and Medicare payouts would reduce the deficit, because there would be the same amount of money coming in and less being paid out.
How could this not be true?
Are you just assuming that they would reduce taxes the equivalent amount of the reduction in payouts? If that was true, why would ______ even propose that as a way to reduce defecits?
No, it would not.
Keeping the SS & Medicare tax the same while cutting it’s benefits would increase the already large SS/Medicare trust surplus. By law, it stands on it’s own and is not part of the federal deficit. By law, it can’t be counted that way.
To access the Trust surplus, the government would have to borrow money and give to the trust Treasuriesm in place of the cash it takes from the trust.
It would be easier to close the federal deficits by increasing taxes on corporations and close the loop hole allowing them to cheat on their taxes by reporting income earned here, in foreign nations with not taxes. It would also be easier to restore taxes on the rich, and to cut spending that is actually contributing the lion’s share of the deficit:
The military. The War & Aggression spending.
Thank you Timbers, very informative.
@timbers – Law and Reality are not the same.
For Reality, the only deficit that actually matters is the annual change in total Treasury Debt Outstanding.
In this case, “Law” is what Congress uses to fool people unfamiliar with Reality.
I agree with you that healthcare can and should be much less expensive. In fact, Congress could probably mandate 1 or 2% lower Medicare reimbursement levels each year without destroying the system, and reap a significant savings in 5-10 years. But Congress isn’t working for the national public interest, is it?
Some hope with the Delta comment, thanks. Years ago Lincoln Welding had profit sharing deal, maybe even worker ownership? And I don’t need to remind you they made the very best gear for a long time.
Shareholders are ecstatic for the moment with the stock up from $70 in 2016 to $187 now. I really believe CEO’s and Boards of companies in this country are going for the fast buck at this time for themselves, whether they crash and burn the company or not.
CEO John Stumph of Wells Fargo retires happily (along with $134 mil) after defrauding customers. CEO Dennis Muilenburg of Boeing walks away with about $60 mil leaving 346 people dead and 500 unsalable planes parked. They just didn’t know what was happening underneath them in the company, doggone. And on it goes.
A big part of it is massive government with massive regulations that huge companies love to protect themselves from any uppity smaller competitors and protect themselves from jail.
Imagine four other American aircraft manufacturers that would have jumped all over Boeing’s hubris. They are all gone and it is so expensive to get a new airframe certified for flight that no domestic competitors will ever exist again.
A bank that uses fraud as a business model. How are they still in business? How does no one go to jail?
Protected by warm embrace of big government.
UPDATE, hot off the press today: The OCC issued a notice of charges against 5 ex-execs of Wells Fargo, and is seeking to fine them. In addition, it singled out Wells Fargo’s ex-CEO Stumpf: it hit him with a civil monetary penalty of $17 million and twisted his arm hard enough to where he accepted a lifetime ban from the banking industry — no biggie, given that he is about 67, tarnished, and unable to get a real job in the banking industry anyway.
Commit massive fraud…get a fine. Maybe.
So fines just become an expense in the business model. Just like the advertising budget.
Perp walks, jail and claw backs. No banker fears them.
Also he might have earned many more times than what he is being fine.
I won’t mind if I have earned say 50 million and fined for 20 million and barred from industry forever at the age of 65.
Still a good deal.
A Good Deal????!
That is a modern Success Story!……..unfortunately
Nobody ever goes to jail.
Steal $100 go to jail for a year
Steal $100 million get a partial fine
The decrepit state of our corrupted society.
Proving beyond a shadow of a reasonable doubt that “justice” is just another market commodity……for sale to the highest bidder.
“rule of law” is infinitely tweakable…..which is what most lobbyists engage in.
And why banana blames “big” gov’t for everything…..haven’t heard him comment on “Citizens United”, or corporate crushing of small biz…..even though he claims to love small biz.
The Calvin is strong with banana.
At some point, I do think these boards may face some liability for allowing the exiting disgraced CEOs to skate with so many millions.
The defense is that such pmts are contractually set – from multiple yrs back.
But, these contracts tend to be lengthy and not transparently one sided – so there may be *some* disciplinary mechanisms the Boards are currently declining to enforce or litigate – but that is what shareholder suits are for.
Ditto for truly awful, utterly one sided CEO contracts – the Boards may face liability for having made them at all.
I do wonder if some suits have already been filed in these specific instances – shareholder suit atty are not shy or slow.
No they wont face any liabiliy because all “investors” are obsessed with index funds lately and have voluntarily surrendered all their voting rights to V______d and F______y . How often have you heard of V or F challenging management or boards?
Exactly. V___d and F____y suffer from acute dereliction of fiduciary duty on behalf of their fund investors.
Wonder if a class action lawsuit could work against either?
Coming to a city or town near you, mile or two long freight trains with one poorly trained zombie worn out by random start time 12 hour work shifts and draconian railroad “attendance policies”. UP CEO insists two men in the cab is unnecessary. Those jobs Trump promised to the American workers in the 2017 Tax reform act not only are not materializing, the savings by the slash and burn PSR tactics are going straight into these buybacks enriching shareholders and executives. No wonder the velocity of money is crashing when it’s all held in the hands of a few.
Buybacks started way before Trump. Hint. Think ZIRP, QE and bailouts and the Clinton repeal of Glass-Steagall.
Automation started way before Trump. Hint. There used to be a fireman, to shovel coal, and a guy in the caboose.
Ranting is good. Tightening up the hate with some facts would help.
“Rant”? “Hate”? I saw neither. Perhaps you are way too sensitive?….Please, let not your heart be troubled.
I heard from a Canadian train engineer, on a podcast, talk about how automated the trains are now. He didn’t think they needed anybody running them anymore. In his company layoffs were happening every week for months, and they were still hiring new younger trainees. I guess they need somebody to monitor the computer.
A clear review of financial insanity.
Reminds of the Nikkei Bubble that ran until the last trading day of 1989.
And “Zaitech” would keep it going.
Which was THE word for financial engineering.
All the big funds a full of Union Pacific.
And there is a long history of big speculations completing in the December-January window.
Where we are now.
And the senior indexes are accomplishing technical excesses.
New larger post Panamax container cargo ships may bypass the ports of Los Angeles and Long Beach. Miami, Houston and Savannah have been expanding their port facilities after the Panama Canal was widened. Rail transport and trucking containers across continent might be further reduced. The Suez Canal is another constricted passage with wait times.
Cheap natural gas will close coal mines more than environmental regulations. UNP hauls coal. Natural gas flowed through pipelines. Liquid byproducts from natural gas fields were used in plastic production.
The Midwest flooding last year reduced railroad grain cargoes. Trade war tactics reduced corn and soybean exports as China threatened to develop large farms in Russia; less demand for rail grain cars.
US food and retail sales were up over 5% in December. That is not a recession.
I wonder if Exec Compensation is tied to Stock Price performance – it certainly can’t be tied to company performance?
As far as shareholders (i.e. the owners of the business) are concerned, they are the same thing
It is not impossible that some of these CEO employment agreements might be buried in the bowels of SEC EDGAR.
There are a ton of obscure Corp docs there, attached as downloadable appendices.
That’s where you can find employment contracts containing gems like 100 hours/year personal use of company jets. That’s air time, not clock time.
Corporate leaders can write internal law like any other large fascist state……why we allow such huge ones (larger than many sovereign states in “GDP”) to exist within our larger effort at democratic government is becoming more explainable as they grow ever more more bold.
To Wolf street
Why did you deleted two of my comment on Corona virus? It is NOT fake news! Or is it not PC at this site? Just disappointed!
In fact it was response to:
Jan 23, 2020 at 4:47 pm
Negative rates are coming! Load up on stocks and bonds!
….. so they say
I meant to imply that negative rate matters much if CORONA virus pandemic occurs. It will affect the WALL ST and all the equities!
I understand your question and frustration. But this is a zone free of violence, civil wars, other wars, pandemics, plane crashes, train crashes, suicides, murders, and the like. There is a lot of bad crap happening in the world every day. And people love to write about it, but not here. And I apologize for that.
Wolf… Thank you for your rules and policing them.
No apology necessary. One of the important things that makes this site irreplaceably unique.
Viruses aren’t stupid. They have been at this situational awareness game for 4 Billion years! They may have been the precursor of all life forms, the so called “RNA World”. We split with the chimps maybe 6-7 M years ago. Earth’s latest “babies”.
A virus that is “dumb” enough to kill all it’s prey goes extinct, so they are tuned pretty well to avoid that. They just want to make more viruses, like any critter. Ebola? Who knows?
For instance, viruses (Bacteriophages) kill an estimated 20% of their single celled prey in the oceans every single day. But they can reproduce and replace themselves fast enough, giving us a lot of oxygen and also dead biomass for other critters to eat. Everybody is fairly happy, at least at this point in Earth history.
Unfortunately, we have become clever enough to cause our own extinction…..a dubious honor?….a cosmic joke? But rest assured, life WILL go on, barring BIG asteroid hits, etc.
Scared people don’t use their brains well at all. We have large brains for one reason: Situational Awareness….for literally millions of years now.
Scaring people and then inserting various agendas containing false situational awareness is how people have been manipulated throughout history.
Scared of missing out comes to mind…..for some reason…
Here is a good virus article brought to you by people who seek to add to human’s modern situational awareness. It is cited in many other articles by people pursuing the same goals. I find it far more interesting than the rejected virus comment.
Can’t resist one more point about viral infections. And this was a BIG one. 1918!
Contributing factors were stress, under and malnourishment, WW1 and the “the gilded age” living conditions of city peasants.
In fact, the Black Plague occurred at a time when most of Europe was starving and living in cold, crowded conditions.
What if this worked for dating?
Hey ladies! I’m not talented, overweight, generally out of shape, short-tempered, and have no sense of style. But rather than putting some of my resources into a gym membership or a new wardrobe, I’m gonna double down on feeding myself. More of me to love!
As far as l can see most people in transport jobs are working hard so how is it possible to lay off 25% without major damage to customer service, operations or safety?
With shipments slowing down, there is less brake shoes to replace, less inspections, less repairs on trains and rail cars. With rail road there is a lot of hanging around doing nothing type of jobs.
I call BS on your comment. Here is a video from someone is on the ground.
Where is the BS? Rail road maintanance consists of repairs and inspections lots of them. You have 90, 180, 360, and 720 day inspections, when equipment is not being used and just parked. Inspections are nothing more than a check list on piece of paper. I worked as QMP, speaking from experience.
Of all the major transportation modes rail should be the easiest to robotize, fixed schedules, uniformity of cars, fixed pathways, ease of measuring maintenance, etc. And yet it’s fighting harder to avoid that than autos, cars, etc. If they did it right rail could easily eliminate a large majority of long haul trucking with major savings in pollution and energy. Ocean cargo is rapidly evolving into a minimal human workforce.
Exactly. Railroads could be dramatically improved, but haven’t been in ages. Lightweight materials, computer controls, radar collision avoidance and monitoring, and universal electrification all make sense. See Solutionary Rail for someone who’s thought this out. Would help with eliminating climate and conventional pollution. There’s no reason any train should run on diesel.
How about power failures? Power losses are especially frequent in remote areas of the West.
The warning signs have been there for decades. When BMW bought Rolls Royce (the car side of the business), they were astonished to find that there was not a single engineer on the board, they were all accounts.
Nowadays companies focusing on financial engineering rather than actual engineering are overwhelmingly common. Probably because all the people in the C-Suite have accountancy backgrounds rather than experience in making things.
Dan:. That sounds like Boeing!
A Wharton MBA explained to me. “America is being run by lawyers. China is being run by engineers. You figure where things are going to go.”
KGC:. Didn’t that supposedly happen about 1980 with railway bar codes?
“the company blew $600 million in Q4 and $5.8 billion in the year 2019 on buying back its own shares”
“Over the 12 months between Q4 2018 and Q4 2019, Union Pacific axed 7,133 employees….In 2020, it plans to cut another 3,000 or so jobs.”
So over the two-year period through Q4 2020, Union Pacific spent at least $5.8 billion on share buybacks, while cutting 10,133 jobs. That works out to them spending $572,387 in share buybacks for every job they cut, which could probably have paid for 5-10 years of continued employment for the people they just fired. Implementing massive share buybacks while you’re cutting staff sounds less like a corporate strategy and more like a display of avarice.
Apparently enough of the actual shareholder owners of the firm are okay with it – and if outsiders are unhappy/think the policy is suicidal – they can short, start a competitor, direct business to existing competitors etc.
I agree in thinking that things taken to this extreme are stupid and quite possibly ruinous to the company/current shareholders. But I have not put money at risk to obtain a say.
And if the Board is wrong – they will hopefully be shown the door during bankruptcy (which will zero out their own shares).
Now the BK courts frequently coddle corrupt/dumbass Boards – but that is a separate ruin.
If UP goes belly-up, I’ll bet Ol’ Warren will be there to scavenge the carcass to add to BNSF. I haven’t heard of any share buy-backs by Berkshire lately. Still stacking cash instead, waiting for things to get cheaper.
Everybody’s jovial old financial grandpa hides his dark side extremely well.
“First Billion was the hardest”
Since UP stockholders are 80% institutional holders, what difference does it make? See BlackRock.
Yeah, let’s do it like Cuba. Have 200 people sitting in a factory doing the job of 10 people.
How about a massive Green New Deal instead? People like to feel useful.
Another ‘disequilibrium’ point. Need a new acronym besides EBITDA. There simply is no income left after the payment of Insurance, Debt, Interest on debt and Taxes. IDIOT for short.
The IDIOT index says manufactured goods that must be physically shipped are too expensive for the average household.
Central Banks cannot fix this. Only real wage growth can
Seems the entire stock market is based on the belief that our government cannot allow this stock market to fail. So to jackal investors it’s a no brainer to put everything one has into any successful public company. How would Uncle Sam be able to neglect the huge pensions which millions are depending on?
Investors seem to believe that America is too big to fail. Politicians are not brave people and before this is over our ‘leaders’ will feel ‘forced’ to step in and ‘help’ (destroy) our markets.
Outragous! They are borrowing cheap money to finance stock buybacks while at the same time laying people off, awful.
Where is the push for Employee ownership of the company?
Interesting article Mr. Richter, great work! Where there is no vision the corporation perishes. What if they used just a fraction of the $34.2 billion to replace aging locomotives with more efficient new ones? Or maybe invest in their infrastructure to improve their business routes and accessibility? How about piggybacking more semi trailers?
Anyone hoping for a market bust will likely be waiting for a VERY long while. It’s rather simple to explain when the Fed decides that it will keep rates low and likely cut more if market starts to wobble. They not only want inflation they want DOUBLE digit inflation (Non-CPI) before they start tightening.
By this basic mechanism the stock market could easily increase another 50% under these policies. Doesn’t mean your investments have done all that well, but rather barely kept up with the devaluation of the dollar vis a vi purchasing power. And don’t forget the 20-30% haircut on your phony gains, which actually reduces overal purchase power in relative terms.
So don’t bet this market drops 10,20,30%. It’s more likely to climb by those amounts. But by no means does this mean an increase in relative wealth. A rising market could actually bring decreasing wealth.
I should clarify the 20-30% haircut I referenced is due to Capital gains tax. The penalty for playing the game the fed/Pres want.
Trump did mention indexing gains against inflation. Not a bad idea if inflation is set to soar!
The stock is rising because wealthy people are dripping with cash and they have no place to put their money.
They wealthy class just got a ton of free helicopter money dropped on them by the Fed. It works like this: Corporate tax is cut 40%, the government takes out debt to fund the tax cut, the Fed then buys the debt with printed money. In short, the Fed prints money out of thin air and the government drops it in the laps of the top 10%.
Is it possible for the system to be more corrupted?
There is way over $100 Trillion net household wealth now, I bet. The stock market can’t hold it, so (just my guess) anyone over $10M or so can join the PE club to some extent. Those under will probably take it in the shorts.
Poverty trickles up.
You are right wolf -this market is a runaway train. The only thing
I see stopping it is an out of control health pandemic.They
seem to be managing this one but please no more bat soup.
1) Absorption : co buyback their shares, financed by market makers, the big banks loans, in order to absorb MM shares on the shelves, that were left from the 2009(L) campaign, and what was re-accumulated since, during other corrections lows, – lows that MM targeted and engineered themselves, in the last 11 years.
2) The cost of borrowing from MM is lower than paying : dividends quantity absorbed x annual dividends. The lower shares outstanding count, the higher EPS, on the equal annual profit, plus options, bonuses executives cannot live without.
3) With the current low interest rates environment, the cost of borrowing from MM is a great lever ==>
to lift the total market cap increases, to make ceo a genius.
4) Win win in 2020 is not “I like Ike” 1958. Defense & electronic industry Singelton 1958 financial visions to buyback only at low prices – for his 60Y old practices, MBA students pay 200K. 5) From the 1958 lows the DOW had a perfect vertical liftoff, without correction, thanks to Singelton skills in financial and electronic
engineering, until the DOW started to behave badly
during 1960, JFK election year.
Let me clear : borrowing 1B for buybackat 5% cost 50 millions. 50M can lift co market cap by 10B.
This is a headline worthy of Monty Python. We are in the theatre of the absurd. It’s the most oxymoronic headline I’ve read in sometime with the emphasis being on moronic… by the company and investors of course.
Give the execs and board members stock options….and guess what happens next.
So cheap debt used to buy back higher yield shares until just exec shares & cheap options left?
1) Since 2009 the cumulative buyback chart in 2018 reached a total of 34.2B. In 2018 UNP had x2 vertical pulses
2) During 2009 and 2010 it was hugging the zero line. No Singelton type ceo at UNP helm, in the early stages, when prices range between 18 and 25.
3) The biggest two pulses came in 2018 when UNP stock was struggling. The largest pulse came between Mar to Apr 2018, during the accumulation phase and the second one at the bottom of Oct to Xmas plunge.
4) The input was unusually high, – the highest effort on the cumulative chart, – but the results were pretty good, for a while :
UPN :SPX, that’s UPN relative strength, was rising during 2018, but fading for the entire year, in 2019.
5) Warren Buffett is an old loving Omaha R/R man. During 2018 the R/R sector relative strength to SPX was up, but down during all 2019.
6) In 2018 WB declared a whopping 100B buyback out his 112B cash.
7) Berkshire, BRK/B was very volatile stock in 2018. It was an emergency call to save BRK from falling from 2018 highs to intrinsic value. 8) BRK gap down, “I am falling and cannot get up”, dragging the XLF sector
down. BRK is the largest component of XLF.
9) In Aug 2018 BRK finall had a liftoff, but it was not as impressive as the SPX liftoff. Since Dec 2018 BRK: SPX was falling steadily. BRK is old and tired, like the whole market.
I’ve taken a 37+ hours sleeper bus around the edge of the Taklimakan Desert. It’s a hard place to relieve oneself when you share the bus with 47 other riders and the Uighur-speaking driver stops only randomly. And no trees to hide behind. “)
Share buybacks are internally generated form of private equity asset stripping? Chart of private equity returns versus S&P. https://blogs.cfainstitute.org/investor/2018/12/03/private-equity-the-emperor-has-no-clothes/ Does the old monetization, expansion of government debt, support growth of credit in the burgeoning private sector? Are corporate bonds not merely a parallel world, but the primary bond market. In other words if the Treasury market defaults will corporates rise above the fray, and if the stock market fails, will private equity prove bigger and better than NYSE? Are we on the cusp of a sea change in financial markets?
A Damn good question…..the answer seems to be coming.
I’m too lazy to work it out, but I’m wondering how they would have done if they had bought APPL and AMZN instead of their own stock.
I sold covered calls on every stock I had in March 2019. I was called on every stock on the 01/17/2020 contracts.I made good returns and left money on the table. I think Dow 30k+ is going to happen for sure but I can’t jump back in because the landscape is littered with stocks like Union Pacific that defy logic other than Fed Juiceing. I bought gold and land with some of the proceeds.The only trades I want to do now is inverse trades such as SQQQ. This irrational market messed up my linear hillbilly logic . An investment that does not help the human condition feels incomplete.Feeding the hogs in the afternoon really helps in keeping me sane. The market is plain nuts.