ADT Inc., made news today when it was revealed that they were borrowing $1 billion in cash to support acquisitions, increased dividends, and repurchase shares. We've talked in the past on Ransom Notes Radio about the effects of quantitative easing, how QE has the deformed financial markets.
The case of ADT puts a new twist on an old example. We previously cited Disney, Microsoft and Apple as companies that had run out of good ideas for cash and were pledging substantial amounts of cash for both dividends and share repurchase programs. They can't hire folks for so what the hey.
Why not put the cash to work that has been amply supplied by the Federal Reserve Bank through QE doing other things?
In the previous examples, however, those companies had substantial amounts of cash in the bank. With ADT, however, the cash is coming through low interest loans made possible by quantitative easing.
Like with the other companies ADT has run out of good ideas in terms of reinvesting cash. They have the ability to borrow money, however. And at these favorable low interest rates it would make sense for the companies to do something with that money.
Buying up stock in the open market and passing cash along to current shareholders is just another way of companies Trying to unlock the value of the equity to shareholders. It perhaps is not the smartest way, or the most favorable way, but with low interest rates that we will likely never see again in our lifetime, who can blame them?
Because it certainly remains true that the business conditions for the country are going to remain uncertain for sometime. Even today we discovered a brand-new "glitch" to Obamacare.
Congress in their haste to pass a bill that they didn't even bother reading, made sure that the subsidies offered to individuals who's companies did not provide health plans don't necessarily translate to family coverage.
Congress defined "affordable" as 9.5% or less of an employee's household income, mostly to make sure people did not leave their workplace plans for subsidized coverage through the exchanges. But the "error" was that it only applies to the employee — and not his or her family. So, if an employer offers a woman affordable insurance, but doesn't provide it for her family, they cannot get subsidized help through the state health exchanges.
That can make a huge difference; the Kaiser Family Foundation said an average plan for an individual is about $5,600, but it goes up to $15,700 for families. Most employers help out with those costs, but not all.
"We saw this two-and-a-half years ago and thought, 'Has anyone else noticed this?'" said Kosali Simon, a professor of public affairs at Indiana University who specializes in health economics. "Everyone said, 'No, no. You must be wrong.' But we weren't, and that's going to leave a lot of people out."
The issue has recently received attention, especially after former president Bill Clinton highlighted it in a recent speech.
"The family glitch is definitely a drafting error that Congress made that needs to be fixed," said Joan Alker, executive director of the Georgetown University Center for Children and Families. "But that seems unlikely."
Congress made a lot of drafting errors when it comes to Obamacare. 2,900 pages of them.
Warren Buffett may not have said that we should scrap Obamacare and start over. But if he didn't, he should've. Just goes to show you that while he may be a whiz when it comes to stock investments, he knows nothing about practicing medicine.
Why is it that Americans believe that people who are accomplished in one area of life, are Gnostics about areas they seem to know nothing about? Warren Buffett is not a political genius, nor is Will Ferrell, nor is Jon Stewart, nor was Albert Einstein. Or Jane Fonda, or Barbra Streisand. Frankly my next-door neighbor, "Al", who is a computer technician, knows more about politics than anyone of them.
Yet if I saw the headline Albert So-And-So Thinks Obamacare is Just Nifty! I'd break out and hysterical laughter.
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