Originally Posted by VolAgent
Positive interest rates will be a good thing. Companies will actually have to think of a use for their earnings. Apple among others have been borrowing money at near 0% interest for stock buybacks with their offshore money as collateral. Now, they will have to actually invest it back into the business or pay it out as a dividend.
I agree. Low rates equals free money for huge corporations. Free money, with no major risk attacked to it, leads to poor financial decision making.
Revenue & offshore assets are being used to collateralize huge amounts of almost risk free debt. That debt is then used to purchase stock, which artificially inflates stock prices because of increased volume and higher earnings per share. If its not going into buybacks, its being pumped into acquiring crazy startups that are spending stupid money like trust fund babies.
The allocation of capital among publicly listed companies is insane right now.
But the corporations are not all to blame for this. Huge increases in regulations, uncertainty in regulations, political uncertainty, etc. All make it a safer bet to just play a financial shell game while rates are enabeling them to do so. I mean... why work when you can get all the credit you need at near 0% rates??
Plus just the fact that rates are at that level... if the economy was blowing things out of the water, low rates would happen naturally... but its not, and artificially lowering them just creates artificial conditions in the economy.