Meanwhile, Joe Average, who ended up running a food truck when Wells Fargo "right sized" him during the last recession, will find a comfortable slab of concrete upon which to rest his head, under the viaduct.
Stock buybacks had A LOT of problems people don't discuss.
But this isn't really what ruined the airlines.
UAL -- the hardest hit and worst buyback offender -- bought back $1.2Bn in 2015, $2Bn in 2016, $3Bn in 2017, $1.2Bn in 2018, and $3Bn in 2019.
That's a total of $10.4Bn. To my knowledge, less than 4% of that was on borrowed money.
They returned roughly ~95% of free cashflow to investors mostly through buybacks instead of dividends.
UAL's Cash on Hand increased 25% in 2019 to $4.9Bn.
Even if they had that $10.4Bn, they could not get through Coronavirus. Airlines have HIGHLY volatile margins on INSANE amounts of revenue. None of them could withstand a 70% decrease in air traffic for a year.
Maybe they're all terribly run. I dunno. They were pretty bad buyback offenders, but far from the worst. And buybacks are not what ruined them.
Most companies keep less than 10% of Op Ex in cash on hand. UAL's Op Ex is about $38Bn/year. A lot of people think it's healthy for a business to have 25-50% of Op Ex in cash. For UAL, that would've been $9.5-$19Bn.
They could've been in that range if they didn't issue any dividends or buybacks since 2014. But they still wouldn't be able to make it through this.
And, no, I'm not saying that they should've done buybacks at the rate they did (or at all). I'm just saying this isn't what ruined them, and they are far from the worst offenders here. They're just the hardest hit.
Curious if anyone familiar with the industry can comment:
How much of Airlines' Op Ex is fixed? How much can they realistically cut? I don't know enough about how this "mandatory" flight schedule works. How many flights do they need to keep flying to keep their gates?
Ignoring Tech industry, most companies on earth could not withstand a 70% drop in revenue. The world we are in today is that everyone is trying to go for Big Revenue and Slim Profit Margin. A side effect from QE or worsen by it.
How many tech companies have withstood a 70% drop in revenue? BlackBerry comes to mind.
The correct thing would be to nationalise them if they go bankrupt, not to bail out the investors that earned money with the explicit expectation of risk.
And I say that having lost 10k in stock value in the past month. Still my fault and my risk and I don't deserve to be bailed out for it.
No insurance policy covers war. This is pretty much like a war. It's uninsurable because it affects everyone.
Bailouts in 2020 are not gifts to the reckless rich like in 2008, they're like the Marshall plan.
I've been seeing this on twitter a lot. Is there some context you can provide for why these particular repurchases were in bad taste, given no awareness of the upcoming pandemic. I am assuming you don't view repurchases as 'selfish' generally.
Improvements in leg room, amenities, services, infrastructure, etc, are a form of capital return to customers.
When executive compensation is tied to operating profit or market capitalization, there is an incentive to reduce the product quality (the air traveler experience, in this case) to the minimum competitive level and boost the share price. A buyback boosts the share price in two inter-related ways. First, it reduces the amount of shares available in the secondary market (the "float"), which distributes the market cap across a smaller number of shares. Second, it provides artificial demand for the stock, impacting the price upward by buying shares.
Warren Buffett has stated that he likes investing in equities in part because companies reinvest their profits in their business. A buyback doesn't do that because when you spend $5B on your own stock, you're not spending it on providing a better experience to your customers, and you're not spending it on R&D. You're just spending it on concentrating shareholder ownership and driving up the stock price.
Guess who often gets paid in shares? Executives. It's common for a CEO to get a small portion of his compensation as salary and a large portion as shares and options.
The point is that these companies could have reinvested that money in their business, but instead they aimed to boost share price and financial optics.
That's not to say the airlines don't care about the little guy. Some shareholders are regular folks. Plus, at least Delta paid out a bonus to employees a few months ago. But there is indeed a reason to dislike large buybacks.
> Improvements in leg room, amenities, services, infrastructure, etc, are a form of capital return to customers.
And bailouts are a form of wealth redistribution from people of modest means to wealthy executives and investors who, it turns out, are actually not willing to shoulder the risk associated with passive profits.
> That's not to say the airlines don't care about the little guy.
They actually like the little guy, you can fit more of them on a plane.
In fact if airlines had actually reinvested that money, they would be even more fucked up than they are now. At least now they have free cash flow to make a temporary drop in revenue hurt less. Reinvesting money in the corporate world often involves converting cash flow into debt, which they’re probably going to have to do now to meet their existing financial obligations. Much better than if they were midway through financing some large fleet expansion and had less FCF on hand to weather the travel slowdown
Point 1 is not super important because of the existence of qualified dividends.
Point 2 is like this: let's say I'm a company with 1000 outstanding shares valued at $100 each and want to pay a yearly dividend (for simplicity) of $5/share. All market movements notwithstanding and absent any changes, that means I'm basically giving investors a 5% yearly ROI. But, let's say I instead bought back my shares with all my earnings. The first year, I buy back 5% of the outstanding shares. Now there are 950 outstanding shares and total earnings are still $5000/year. Next year each remaining shareholder gets an extra 5% of earnings per share (this compounds). And rather than pay tax each year on dividends, shareholders defer all their taxes until they exit their position.
One argument is that dividends aren't really worse in this case because investors could still choose to spend the cash on purchasing more shares, accomplishing the same thing. But the deferred taxes change the math.
It's better as a shareholder in many cases to be able to control when you recognize the gain from the return to investors.
Too bad, I guess anyone thinking outside the box and pointing out that our herd is going off a cliff is problematic...
This would make buybacks worse than dividends for everyone who isn't a shareholder.
Buybacks are an accident of tax law and ought to be taxed the same way as dividends.
The problem is it's really the other way around -- reinvested dividends should be taxed like buybacks, i.e. taxed when the purchased shares are sold.
By contrast, taxing buybacks like current dividends would create a really grisly incentive for corporations to hoard a giant pile of money, since that would be the remaining way to defer the tax. This is already what international corporations do with offshore profits because of a similar incentive to defer corporate income tax, and it's a huge problem.
We have a policy of allowing people to avoid tax on investment gains until the investments are cashed out -- this is what a 401k is all about. We might as well make it consistent across the board so it stops creating all of these perverse incentives. (That would reduce the amount of tax collected, but it would also remove most of the justification for taxing capital gains at a lower rate than earned income, so changing both at once would about balance out.)
If you own a restaurant and a sports stadium opens next door which causes the value of the land to double overnight, you'd suddenly owe $50,000 in capital gains tax, but what if you don't have $50,000 in cash? You'd have to sell your restaurant to pay the tax on it.
If you write some software for your small business and start to license it to people for $50 each, how much is your corporation which owns the copyright now worth? Ten thousand dollars? Ten billion dollars? It depends how many copies you expect to sell. But the government would have to appraise it. What do you do if they appraise it as worth tens of millions of dollars? You'd immediately owe more than a million dollars in capital gains tax, but it's on the appraised value of an asset that may not turn into that much revenue for years -- or at all. And with no guarantee you could even find anyone willing to pay you that much for the business.
There are good reasons not to collect the tax until the investment is converted to cash.
And generally speaking better leg room, amenities, and services dont sell more tickets. Your competitor will be gaining on you via even lower price. As shown by all the budget Airline. It was the customer than decides the more expensive plane ticket wasn't worth it.
I am not sure I have a solution to this problem.
It is also prudent for a corporation to have a rainy day fund for unpredictable events like an upcoming pandemic.
An individual who didn't properly save can go bankrupt in a time of emergency. Likewise, a company which didn't properly save should also go bankrupt in a time of emergency. Look at Apple or Berkshire Hathaway. Both have a massive safety net in the form of liquid cash for hard times.
To that end, any French company at risk of going under will be allowed to stop paying rent and taxes during the shutdown.
If everybody stopped paying debts and rent, the financial industry could crash overnight as suddenly nobody has the cash flow to pay each other any more. And that would trickle down immediately - not only as banks and property management groups go out of business, but in property tax revenues, pensions, people on fixed incomes, and then all the second and third order effects: insurance and reinsurance, massive market panics, etc. It sounds nice on an individual basis but the risk is insanely huge
I think the simplest solution is for the fed/government to simply give everybody cash, since the root of the problem is that a lot of people have temporarily lost their incomes due to their jobs being essentially banned in response to the pandemic (eg a lot of people in retail outside of supermarkets/food). Anything that involves nonpayment is extremely risky
Wow!. Thank you I have argued that in crisis rent along with many other contract obligation should be exempted. I cant believe a government has actually done it.
We must have a rent holiday if those businesses and their workers are to survive.
We'll get a lot of rent forgiveness naturally. If a strip mall has some tenants who cannot make rent in this crisis, who are they going to get who can pay? The pragmatic approach is to keep your existing tenants, because their survival is your strip mall's survival.
Many land owners would already prefer to leave their buildings empty for years over even considering negotiating on rent. I doubt anything can change their minds.
We already have that. I pay huge property taxes every year and so does everyone else who owns land.
Taxes are a way to pay for communal goods. We don't pay enough of them - our obsession with cutting them is part and parcel of the disastrous response to SARS2-CoV.
I very much like having a government that can step in during emergencies and distribute the load. I like living in a society where we care about other people to.
Abolishing taxes is strictly "me first, fuck the rest". I suggest people who like this approach try living in Somalia for a while, that's their desired end state.
For example let’s say I have a 100 unit apartment building. If I maintain a 20% vacancy rate target I can charge an average of $1000/mo/unit. But to set a price at which my vacancies get filled very quickly, to hit a 5% vacancy rate, maybe I need to charge $700/mo/unit. In that case I’m making less money than before - $80k/mo vs $66.5k/mo.
The idea here is to minimise the long term damage caused by people being forced into liquidation as a route to recoup losses and increase protection for individuals who are also temporarily affected.
Every large retail store is open (so far) in Southern California, with most retailers' inventory being purchased at full retail prices.
I am not sure why the retailers don't switch to curbside-pickup model exclusively, instead preferring hordes of customers roaming around every single morning, but from what I hear, Instacart and store-specific delivery programs are overwhelmed.
Every morning I go to the grocery store in my neighborhood looking for toilet paper and every morning there is some new staple nearly out of stock. I still have a few rolls left, and amazon seems to have a few remaining in stock, so things aren't dire yet, but they are getting concerning.
This is also a city where not too long ago the social contract evaporated after hearing a verdict, requiring military intervention to restore order. An armed militia formerly stood on the roof of the store I scoured today for toilet paper. I'm fearful of what will happen when everyone realizes they can no longer wipe their ass or buy rice and the working class starts getting laid off en masse, and when this virus starts ravaging the 150k+ homeless in southern california.
It's partially due to hoarding, partially due to panic buying, and partially due to the lockdown of many schools and businesses, which caused most eating+drinking+related activity to move home, raising household demands on food and toilet paper above normal.
Also, if you're supposed to show your face in public as infrequently as possible, then instead of 10 shopping trips you're better off making 1 shopping trip buying 10x the stuff. Which exacerbates availability.
I suggest we start addressing inequalities and maybe all cut back a bit and share the burden, instead of hoarding now and then being surprised that the people unable to hoard object to that idea when nothing is left for them, at all. That means taking care of the working class and the homeless, too.
I've had Amazon Fresh cancel two orders so far so I'm not sure how open they are.
Larger businesses have a proportionately larger need for money to sustain themselves. Big business doesn't mean rich business. Look what's happening to the airlines.
“I don’t think we’re ever going to lose money again,” -Doug Parker, American Airlines CEO, 2017.
Let 'em fail.
But letting the weakest one fail as a warning to the others that the bailouts are over and perhaps they should learn to save against rainy days isn't the worst idea.
Given climate change, air travel is not a public good we should be prioritising.
"Too big to fail?" We fell for that once before.
Airline comes out nimble and debt free. Average Joe still has airline competition. Shareholders get wiped out, but that’s the risk you run for yield.
I am in the tourism industry, owning a small-medium hotel.
If I stop paying any loans and generally I am left out of cash-flow I am pretty much screwed for the next few years, if not closing down.
I know though a few people around my area with massive resorts and a debt over 100mil that have already stopped paying quite a few loans themselvs and they are getting away with a slap on their wrist. The gov gets involved cause the debt is enough to damage a bank, and the people that are going to be left without a job are enough to cause a mini crisis. Then the bank itself... well for them its not just about ceasing the asset as its gonna be a hard thing to sell or manage.
Meanwhile the owners are taking out massive salaries + bonuses for their personal accounts and don't care about their balance sheet being a mess and their debts growing.
My elderly neighbors, for example, are now ordering their groceries online and having them dumped on their doorstep.
Until people camping at home start getting sick, with their common factor being Amazon Fresh delivery.
Prime Now is now unavailable entirely. At checkout, it simply says "No delivery times available" for all stores.
Amazon Fresh also gives no available delivery windows.
They're definitely struggling for the same reason grocery stores are; it's not a stock limitation, it's not enough hands to move it.
Got an email from a company i do work with, and they’re calling for 21 day delays for shipping items, and suspending new orders. Just because they literally cannot package and ship fast enough.
I wanted to order a few necessities and an extra thing (pizza pan). The pizza pan quite likely wouldn't be highly in demand during this (or I'm quite wrong, I don't know) but even with Prime it won't arrive for 4 days.
I use alternative, usually local or national rather than multinational, suppliers.
> “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.”
-- Judge Learned Hand (1872-1961), Judge, U. S. Court of Appeals
Amazon has a huge business in the UK with offices, staff, stock and warehouses, but Amazon UK doesn't sell stuff. You are actually buying UK goods from UK warehouses with UK delivery etc but the money goes straight to Amazon EU Sarl in Luxembourg, where it has a sweetheart tax deal.
So Amazon exploits the whole UK social system of education, health services, roads, police etc etc without paying the UK government for the benefits. This is really bad for the UK and other countries except Luxembourg.
Meanwhile, Amazon EU Sarl reduces its taxes by paying Amazon Europe Holding Technologies SCS - a "non-resident" company -- hundreds of millions of euros for "intellectual property" rights that are basically untaxed (Amazon is paying itself), and the money gets spirited back to the USA.
The cost of "intellectual property" is really just a made-up number. What is Amazon charging itself vast amounts of money for when its UK website and business processes are basically the same as its American and other websites?
The whole thing may be legal but it's basically a fraud, and the EU ordered EU ordered Amazon to repay €250m in “illegal tax advantages”. Which is still chickenfeed for a company of Amazon's size and wealth.
It's highly likely that European countries will introduce a "digital tax" on turnover to stop this kind of cheating. I expect Americans will get angry if or when that happens, but in the long run, we don't have an alternative. Infrastructure is expensive, and the money should come from the people who are benefiting from it.
In the US, of course, Amazon gets tax breaks from people who want Amazon investment. New Jersey offered $7bn of tax incentives in its bid for Amazon's "second headquarters".
If companies like Amazon actually paid the taxes required by law that would be nice. Instead they have armies of people finding wholly artificial ways to legally avoid paying those taxes.
Every big company is playing the tax game. It would be irresponsible of them not to.
Given the history of Amazon, how can you be anything but cynical?
They’re providing an important service to everyone and keeping them from going out and getting sick, I’d hope that’s profitable to do!!!
Next you’ll say hospitals are profiting off the global health crisis?
Providing basic necessities (I just bought some flour on Amazon and gladly paid for it) is not profiting off a crisis.
Even if everything was in stock I'd expect my overall online purchases to decline in the next few months. I'm not really worried about new clothes if I'm not going outside, and a lot of things like toys and gadgets I usually waste money on seem a lot less important with a worldwide pandemic growing exponentially outside. I'm probably an outlier though in terms of how much I spend/waste on online shopping discretionary spending in normal circumstances (and a lot of that discretionary spending like clothes is not going to amazon anyway).
Do you have any idea what the full industrial capacity of the American economy is? These type of basic items are all dead-simple to manufacture, and highly unlikely to run into supply-chain interruptions.
I guarantee you that once Americans get the full on prepping instinct out of their system, the inventories will all be replenished by next week at the latest. This isn't the collapse of industrial civilization. The factories are churning at 100% capacity.
People won't keep stockpiling six months of toilet paper every single week. There's virtually zero chance that there's any significant supply interruption beyond a few days.
We are a few weeks ahead of you here in Australia on the panic buying and toilet paper is one of the few things we actually produce here.
But it's still impossible to get in most places a few weeks after the panic buying first happened. People seem to buy it immediately on reflex, and people who didn't panic buy are beginning to panic search for it.
One factor is that toilet paper is a bulky item, which makes the logistics of shipping and storage tricky. But still! I'm very surprised at how fragile this (fairly simple) supply chain has proven.
Literally Amazon is the only company because of which I feel comfortable right now sitting in my house vs. panic buying.
Amazon and Bezos should certainly be taxed their share. I for one don't want to support tax avoidance/evasion and theft from labor. They're not running a charity work or a public service disguised as Amazon marketplace (there is Amazon Smile to be fair) by any means, at least not to my knowledge.
Amazon doesn't make me feel any bit safer and no business should be capitalizing on panic buying, be it a local business or Amazon.
They're running Amazon and hiring more workers because there's a massive opportunity to further stamp out their retailer competition, solidify their foothold further, and make money... not out of the goodness of their investors hearts. It's about money/business opportunity, not your security.
Nothing wrong with that.
In a pretty shitty one. That is the ultimate goal of modern cut-throat capitalism: get utter market domination, destroy all competition and once that is done, raise the prices as far as possible without attracting too much protest from the few regulatory institutions that remain.
True, but the only way they can achieve that is by using the government to outlaw competition and/or regulate them out of existence.
Their attempts to do it result in prosperity, high standards of living, longevity, etc.
(it has nothing to do with being "modern")
Can’t we leave this bullshit to when it seems like a problem again, instead of meaningless background to the plague, while our loved ones die, economies implode and daily life is wrenched into new shapes?
I won't say everything is like that but I have been looking at some school supplies as my son is home and I have been unable to find anything for delivery this week.
So makes sense.
When Whole Foods (basically Amazon, but not technically) is the seller, there's one availability for 6pm tomorrow.
They were out of a lot of things, but still had enough for a 'normal' round of groceries, I didn't find everything I usually buy, but they had adequate substitutes. Refrigerated/frozen goods seem the hardest to find.
Right now, if I was an Amazon worker, I'd be hitting up every other employee about forming a union ASAP. They're going to want that kind of bargaining power to protect themselves.
It would require the US military and national guard to implement and keep functioning properly. You need someone with huge scale, federal power (overrule local bullshit), and national reach to ensure safety, supply, delivery and make hard decisions as they crop up.
Amazon's track record with workers suggests this is unlikely, to say the least.
I also hope Amazon does this responsibly, and creates the conditions in which the strictest possible social distancing could be maintained for people working in the warehouses.
It's pretty clear to me that we can't shut down the economy due to this for any extended period of time. We also can't do these planet-scale epidemiological drills every year. If that's the case, we should figure out a way to alleviate our current predicament as much as possible until there is a vaccine or a cure. Amazon can be a large part of that.
Then put the potential profits made into running a better society.
Govt should make sure labour, monopoly laws and taxes are aligned with society's expectations.
AWS and advertising are where their margin and profit centers are.
In terms of retail support action - Costco's stock is one of the few large companies that hasn't cratered. It's not much lower than its average for the year, whereas most everything else has been hammered.
You could double Amazon's retail sales in the US and it will get you a few extra billion dollars in profit. The problem is retail makes up a very modest share of their overall profitability. So it won't move the needle much on a $840 billion market cap. It works for Costco because essentially all of their market cap is based on retail sales and the demand surge they're seeing. So you get a direct IV line between the crazy panic buying and the COST stock. Although, if there are supply problems coming up next, be careful holding COST as well.
Also I don't know what they're expecting. They either have mountains of stock or they'll be laying these people back off soon when factories close. I think supplies out of China are still disrupted.
Link to study: https://www.medrxiv.org/content/10.1101/2020.03.09.20033217v...
Honestly statistically speaking in most areas out chances of coming into contact with the virus are still quite low. There's 300MM+ people here and even if 1MM are infected, those are good odds.
You are presuming that you are meeting people at random - however you are most likely to meet people with a high number of social interactions, and they are far more likely to catch the virus.
Depending on the social graph, your chances vary, but the chance will clearly be far worse than a crude estimate.
Well, those who are willing to comply.
If you have the space and can order stuff a week before you need it, I suggest this.
Not sure how this affected transmission, but doubt the same protections will be in place for delivery workers in the US because of shortages masks, gloves, etc.
Last I saw, it was for sale for $750k.
But unlike jobs that label themselves "system critical" such as banks, investment vulture funds and others of their ilk, the really essential jobs have one thing in common: extremely shitty pay, sometimes outright exploitative working conditions.
Since they keep showing up, they clearly think these jobs are their best option at the moment.
Here's my point: I strongly believe that you or I have neither the information or the right to judge that choice or take it away from them.
The piss in a bottle stories are just that. Amazon and Bezos have much attention and many enemies. Stories about how awful they are will always appear and circulate.
I imagine they eat while on the move too.
So I’m not quite sure this is the indignity you make it or to be.
It is. Eating during driving is dangerous, even more so with a multi ton delivery truck. Pissing in a bottle is disgusting and a public health risk (where to properly wash hands, for one).
If delivery set prices do not cover that employees get enough time to decently work, then they have to be raised!
I repeat the same question -- if they don't like it there so much, why not go work for Walmart? Or Target, Home Depot, BJ's, etc.?
If the way they're attracting employees is by offering better pay and benefits than competitors rather than by offering a less demanding job, it's not as if that isn't public information. Why would you choose a thing and then object to the trade offs inherent in it?
People have this desire for them to do both, but if the job was less demanding then they could attract employees with less compensation, and they'd have every reason to not pay as much. So why is it wrong for employees to prefer to get paid more in exchange for fewer breaks?
It's like people hate for anybody to have a choice. If you work for Amazon you get paid more but work inflexible hours with limited breaks. If you work for Uber you get paid less but you set your own hours and can take a break whenever you want. Yet somehow both of these are put up as examples of mistreatment. They're just the trade offs inherent in the unskilled labor market.
With that said - Ramin Djawadi would like to have a word with you.
Thats on the nose enough that I'm wondering if you knew Idris Elba just announced he had Coronavirus.
I read Theranos at first.
Jesus christ! That's enough myopic behaviour for one day, no more internet for 24 hours for me.
Prolly has a base on the dark side of the moon.
I would be astounded if there are many billionaires in the USA who are not this moment already taking chloroquine/hydroxychloroquine in the recommended prophylaxis doses, even outside of those deemed mission-critical by the most powerful organization on the continent.
There's a phase 3 trial for treating pneumonia associated with coronavirus. This is based on prior work showing anti-inflammatory response in rheumatoid arthritis (https://www.ncbi.nlm.nih.gov/pubmed/8278823).
Note that the trial is happening in China (https://clinicaltrials.gov/ct2/show/NCT04261517), where the barriers of entry and approval are quite low.
Huh. I'm on 200mg/day for rheumatoid arthritis.
I wonder if I ought to double dose for a while.
There are a fair amount of studies who took the initial in vitro results (i.e. cell culture) suggesting non-specific antiviral activity (at that level coca-cola is also an antiviral, antimicrobial, and antitumoral, by the way), into animal or human, and they just did not pan out, because it isn't an antiviral.
I'll ask my rheumatologist about increasing the dose. In case I get infected, have trouble breathing, and can't get hospital care.