Helping to prove my point, Schultz on Thursday said companies that buy back their own stock are un-American.
"Large companies have purchased -- here are the numbers -- $273 billion -- billion -- of their own shares this year. And my friends, that is five times as much as compared to this time last year," exclaimed a typically red-faced Schultz.
"This is what they`re doing," he continued. "They`re hogging. The American companies have no sense of economic patriotism" (video follows with transcript and commentary):
ED SCHULTZ, HOST: But this is the story that has me fired up tonight. At this hour, here are the numbers. About 15 million Americans are out of work, unemployed, 41.8 million Americans are on food stamps. That`s hard to say. Think about that, 42 million Americans are on food stamps. And where are Republicans? John Boehner is asking, Well, where are the jobs? And big businesses is wasting billions of dollars on themselves.
According to "The Washington Post," large companies like Microsoft, Hewlett-Packard, Pepsico and others -- well, they`re using their massive profits buying back shares instead of investing capital for job creation in this country. These American companies -- what they`re doing is they`re taking advantage of the lowest interest rates in decades to buy back cheap stock -- how American of them! -- instead of investing cash to create jobs. It`s all about the record profits, folks, and going to the bottom line as fast as they can. And who`s paying the price for all of this? The American worker.
Large companies have purchased -- here are the numbers -- $273 billion -- billion -- of their own shares this year. And my friends, that is five times as much as compared to this time last year. This is what they`re doing. They`re hogging. The American companies have no sense of economic patriotism.
And a third quarter survey, just completed, of nearly a thousand chief financial officers by Duke University and "CFO" magazine shows that less than 1 percent of CFOs said that they expect to hire more full-time employees in the coming months. I mean, it`s all right there! This proves that greedy, selfish corporate suits -- they don`t give a damn about the working class in this country, the American people who need a job. This is all about maximizing profits and creating a deeper divide between the haves and the have-nots, and they want the righties to get power in the Congress.
The ignorance on display here is astonishing.
There are many reasons for companies to buy back their own stock and none of them have anything to do with politics or patriotism. Quite the contrary, it's often good business sense.
Here are some facts from the Washington Post article Schultz cited that he chose not to share with his viewers:
Some companies are buying back shares partly because they don't want to invest in developing new products or services while consumer demand remains weak, analysts said.
"They don't know what they want to do with all the cash they're sitting on," said Zachary Karabell, president of RiverTwice Research.
Historically low interest rates are also prompting some companies to borrow to repurchase shares.
Microsoft, for instance, borrowed $4.75 billion last month by issuing new bonds at rock-bottom interest rates and announced it would use some of that money to buy back shares.
Indeed. When interest rates are low like they are now, it makes tremendous sense for companies to issue more bonds and buy back stock. This allows them to raise money at little cost while reducing the number of shares outstanding thereby increasing the value of their stock.
This happens in every economic cycle which Schultz might know if he wasn't so obviously uninformed about such things.
Furthermore, there's nothing nefarious about companies not doing a lot of capital or employee investing at this stage of a weak recovery. As the Post piece pointed out:
Defenders of the practice say companies are better off buying back shares if they don't see opportunities to spend while demand remains weak.
"There are times when the best thing to do might well be to buy back your stock and issue it back again at higher prices," said Jim Paulsen, chief investment strategist at Wells Capital Management. "There's nothing wrong with that."
Indeed. As for Schultz's claim the Duke/CFO magazine survey "proves that greedy, selfish corporate suits -- they don`t give a damn about the working class in this country, the American people who need a job," maybe he should have read the entire paragraph on this subject:
A third-quarter survey of nearly 1,000 chief financial officers by Duke University and CFO Magazine found that the executives' optimism about the U.S. economy had dropped by more than 15 percent compared with the previous three months. That is nearly as low as survey results from the first quarter of 2009, when the economic turmoil was in full swing. Half of the CFOs said their companies will keep clinging to their cash, and only 0.7 percent said they expect to hire more full-time employees.
As such, CFO's aren't looking to hire because their optimism about the economy has declined in recent months almost back to levels in the first quarter of 2009.
Either Schultz chose not to read those sentences in that paragraph or he didn't understand them.
Frankly, from what I've seen of this ignoramus in the past few months, I believe it's the latter.
