Finance

We Are All Sears Now

By David Stockman  |  October 29, 2018

“For somebody that is of my generation,” said the Donald, “Sears Roebuck was a big deal, so it’s very sad to see… Sears has been dying for many years. It’s been obviously improperly run for many years…”

Of course, he’s right.

But who’s going to tell the Donald his Treasury Secretary is one of the guys who “improperly” ran Sears to its death?

Steve Mnuchin spent a decade making tax-driven investments in Hollywood movies.

He spent another five years harvesting billions from IndyMac, an FDIC-supported corpse that should have been liquidated when it failed in 2008.

In the meanwhile, he spent 11 years helping Eddie Lampert and Bruce Berkowitz drive the storied Sears and K-Mart retail chains into bankruptcy.

Now, we’re supposed to believe he’s busy helping the Donald “drain the swamp” and kick-start the Main Street economy.

Right…

This is the perfect illustration of what’s wrong with Wall Street, Imperial Washington, the Acela Corridor…

Ours is indeed a sick duopoly.

Sears is just the poster child for Bubble Finance.

Its bankruptcy is the consequence of financial engineering encouraged by decades of easy money and falsified price signals.

From 2006 through 2012, it spent $6 billion on buybacks – even though it generated only $1.8 billion of operating free cash flow during the same period.

From 2010 to 2012, it actually generated cumulative free cash flow of negative $1.7 billion. But it kept repurchasing stock – to the tune of $1.2 billion – by borrowing.

Sears should have been in Chapter 11 years ago. An honest free market does not foster zombies; it dispatches them.

But Corporate America has been taken over by CEOs and CFOs more interested in self-aggrandizing financial engineering than Main Street-prosperity-building capital investment.

They feed Wall Street’s demand for dividends, buybacks, and big M&A deals. They strip-mine company balance sheets and divert cash flows to the point that there’s nothing left for investment in anything actually productive – like facilities, equipment, and people.

Companies in the S&P 500 Index reported profits of about $1 trillion for the 12 months ended June 30, 2018.

Now, consider this: The combined estimated total cost of dividends, buybacks, and M&A will hit a record $2.5 trillion this year.

That means the 500 largest American publicly traded companies will end up disgorging more than 200% of their net income to Wall Street.

Steve Mnuchin served on Sears’ board from 2005 until December 2016. He was there as the company repeatedly tapped markets for debt and real estate financing. Those moves postponed the day of reckoning.

And they helped Mnuchin and his men hide the cheese.

It’s a powerful reminder why Trumponics is bound to fail.

The Donald hurried to get Janet Yellen out of Federal Reserve Chair, though he didn’t really know why. Now, he thinks Jay Powell is “normalizing” too fast.

So, it’s fair to wonder whether he has any idea about the multi-trillion-dollar financial engineering spree that’s draining the lifeblood out of the Main Street economy.

All the tax cuts and all the deregulation in the world are not going revitalize the American economy.

The only thing that will is the end of Bubble Finance.

Former White House Budget Director: 50% Crash Coming!

The horrible start to October has investors on high alert. This market bubble – inflated by the Fed’s low interest rates and Republican tax cuts – may have finally run its course.… Read More
David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR