At 11:43 AM -0800 3/4/97, [EMAIL PROTECTED] wrote: >Doug, > >In your latest LBO, you note that businesses' internal funds reached 109% of >fixed capital, yet firm's still borrow an average of 32% of "capex" and rely >little on stocks to finance expansion of plant and equipment. > >My question is: what does the 32% of borrowing represent? Is it a "mix" >problem, ie. utilities use long-term debt but GM and GE do not? There's some of that, but lots of the borrowing in the 1980s was used to fund M&A and stock buybacks. More micro-oriented studies (these numbers come from the flow of funds) show manufacturers of all sizes to be financed overwhelmingly by internal funds. I certainly don't deny that outside finance can be important, even crucial, to individual firms at certain times. My major point in bringing this up - which I go into at tedious length in my book (Wall Street, Verso, May/June 1997, ISBN 0-86091-495-X; visit http://www.panix.com/~dhenwood/Book_info.html for more info) - is that a massive and expensive financial apparatus has bloated up around what is essentially a surprisingly modest need for intermediation. >Also, stock analysts like Ed Yardeni & Abbey Cohen claim that we are entering >a "new era" where traditional stock measures (e.g. PE ratios) are no longer >meaningful. They would say that, now, wouldn't they? They work for stockbrokers. Greenspan's Humphrey-Hawkins testimony last week was extremely hawkish - far more than anyone seems to have noticed. He's definitely preparing the markets for the hammer. Doug -- Doug Henwood Left Business Observer 250 W 85 St New York NY 10024-3217 USA +1-212-874-4020 voice +1-212-874-3137 fax email: <mailto:[EMAIL PROTECTED]> web: <http://www.panix.com/~dhenwood/LBO_home.html>
