“We The People” Are Getting Screwed!

The Fed, U.S Investments, U.S. Dollar
Reading Time: 6 minutes

Enough is enough! It makes no difference what political party is at the helm, our government is foolishly wasting money and putting OUR country at risk.

While the preamble to our Constitution begins with, “We The People”, somehow the concept of elected representatives looking after OUR best interest got lost along the way.

Pundit Bill Bonner defines government in simple terms:

“It is an organization that has only one real goal – to protect and promote the people who control it.

“The simple truth is that our businessmen do not want a government that will let business alone. They want a government they can use.”
  — Albert J. Nock

And as we’ve seen, illuminated by the great Italian economist Vilfredo Pareto, it is always controlled by a small segment of the society – the elite.

We’ve seen also that the ‘investments’ made on behalf of the public most often benefit only the elite.

…. Elections are supposed to ‘throw the bums out.’ But apart from a few headliner acts, the show remains little changed…with the same clowns, misallocating the same resources, over and over.”

While I have written about the need for Congress to reinstate the Glass-Steagall act; separating the casino investment houses from our banking system, another outrageous issue raised my blood pressure.

Wolf Richter’s article, Intel & TSMC on Chip Shortage: After Blowing $84 Billion on Share Buybacks since 2011 and Now Woefully Behind, Intel Clamors for $50 Billion in Subsidies for US Chip Industry, tells us:

“US semiconductor manufacturing has declined to where it is now only 12% of the world’s total, said Intel’s new CEO Pat Gelsinger in an interview with CBS on 60 Minutes. …. “It’s a problem…because relying on one region, especially one as unpredictable as Asia,” where 75% of the chips are made, is highly risky.”

And Intel, which made $63 billion in net income over the past three years combined, “has been lobbying the US government to help revive chip manufacturing at home – with incentives, subsidies, and-or tax breaks, the way the governments of Taiwan, Singapore, and Israel have done,” Gelsinger said. This lobbying came after Intel had incinerated $84.5 billion in share buybacks since 2011 (data via YCharts):

The success of Intel’s lobbying became clear in late March when the White House unveiled $50 billion in subsidies for semiconductor makers in the US…as part of its $2 trillion infrastructure plan. The subsidies for the semiconductor industry have bipartisan support in Congress, the White House said. Corporate subsidies have nearly always bipartisan support.”

Wolf Street reports on the Ford earnings announcement, “Semiconductor Shortage Bites: Ford Cuts Q2 Production by 50%”:

“If an auto assembly plant runs out of just one component that couldn’t be delivered because the component maker had run out of one type of semiconductor…the vehicle cannot be built, or cannot be finished and sold, and production halts. That’s essentially the problem that the entire auto industry is now facing.

Ford, when it announced earnings…shed more light on what the global semiconductor shortage…means in terms of lost vehicle production and lost dollars.

It included these whoppers:

  • It expects to lose 50% of its planned production in Q2, after having lost 17% of its planned production in Q1.
  • The semiconductor shortage ‘will get worse before it gets better.’
  • In the second half, it expects to lose 10% of planned production.
  • For the whole year, it expects to lose 1.1 million vehicles of production, compared to prior estimates of production losses of 200,000 to 400,000 vehicles.
  • Due to the semiconductor shortage, it expects an ‘adverse effect’ to earnings before interest and taxes (EBIT) of $2.5 billion.
  • ‘Like many others in the industry,’ it expects that the global semiconductor shortage for the entire industry ‘may not be fully resolved until 2022.'”

The ripple effect for all manufacturing is mind-boggling. Don’t expect prices on consumer electronics to be coming down anytime soon….

Shame on Intel management?

Instinctively, I wanted to nail Intel management for their short-term thinking.

One of my former clients, Schlumberger, was a high-tech company. Top management mandated that 20% of their total revenue be invested back into the company each year for research; that’s a lot!

I asked one of their top executives, “why?” His response was simple:

“Dennis, if we relied on five-year-old technology, we would be out of business today. It’s simple – innovate or die! If a farmer consumes all his grain, he will have no seeds for next year’s crop.”

I suspected Intel’s loss of market share might have been caused by cutting corners on research, while using the money for dividends and stock buybacks. I was wrong.

Electronics Weekly tells us, “Intel Out-Spends Everyone On R&D”:

Intel has been profitable, doesn’t appear to be skimping on research, and their $84 billion in stock buybacks wasn’t done with borrowed money.

Yet today they are lobbing the government (meaning us, the taxpayers) for money and announced capital spending plans (approximately $25 billion) for plants in Arizona and Utah. As a taxpayer, I’d prefer they pay for their expansion efforts with their profits, not my money!

This issue affects us all

A few years ago Forbes reported, “The Ugly Truth Behind Stock Buybacks”:

“For most of the 20th century, stock buybacks were deemed illegal because they were thought to be a form of stock market manipulation.

But since 1982, when they were essentially legalized by the SEC (Emphasis mine), buybacks have become perhaps the most popular financial engineering tool in the C-Suite tool shed. And it’s obvious why Wall Street loves them: Buying back company stock can inflate a company’s share price and boost its earnings per share—metrics that often guide lucrative executive bonuses.

“In a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.”
  — Matt Taibbi

As Reuters wrote recently, “Stock buybacks enrich the bosses even when business sags.’

…. In November 2016, Goldman Sachs’ chief equity strategist David Kostin estimated that, in 2017, S&P 500 companies will spend $780 billion on buybacksa new record.

That’s crazy.”

Yahoo Finance reports, “Intel CEO’s New Crusade Pits Investors Against U.S. Interests”: (Emphasis mine)

“(Bloomberg) — Intel Corp.’s new Chief Executive Officer Pat Gelsinger wants the company to regain its former glory as the world’s leading chip manufacturer and he says it’s a strategic priority for the U.S.

That pits the industry veteran against investors and analysts who are hankering for quick results and think Intel’s bottom line takes precedence.

‘This is a national asset. This company needs to be healthy for the technology industry, for technology in America,’ Gelsinger told analysts late Thursday after pledging to keep most of Intel’s semiconductor production in-house. ‘It’s an opportunity to help and to unquestionably put Intel and the United States in the technology leadership position.’

…. Intel will struggle to live up to Gelsinger’s assertion that the company can catch and pass Taiwan Semiconductor Manufacturing Co., the current leader in chip production.

…. The chip industry is at the heart of a growing national rivalry between China and the U.S. China is the biggest consumer of semiconductors and the government there has vowed to spend more than $160 billion to create a domestic semiconductor sector. So far, though, it still relies heavily on U.S. chipmakers. …. While many U.S. companies still design advanced chips, they have them made by TSMC in Taiwan.

…. If Intel outsourced production to TSMC — as some on Wall Street want — the U.S. would lose a major advanced manufacturing sector and hand more crucial know-how to Taiwan, a country China calls a rogue province that is only 100 miles off the coast of the mainland.”

So, who on Wall Street is pressuring Intel for quick results, more cash flowing out of the country and outsourcing production to Taiwan? Wall Street Zen, tells us who owns and controls Intel:

The top five banks, with their respective investment arms, control over half of the mutual funds in the country. They want to siphon as much corporate cash and profits into their coffers as possible. Allocating capital for building production facilities, which has long term benefits, reduces the cash available for dividends. Stock buybacks helps their mutual funds look good while they earn even more in fund fees.

In 2019, I wrote an open letter to Larry Culp, the new CEO at GE.

GE was one of the worst buyback offenders; borrowing money to buy back stock, while ignoring their woefully underfunded pension plan. GE capitulated to “investors and analysts hankering for quick results”; with little regard for the long-term damage it may cause.

“Even now,…the Fed is still adding new money at a rate of almost $30 billion per week.

A lot of this monetary stimulus goes where it is intended to go – into the pockets of the elite.”

  — Bill Bonner

The Wall Street investment houses, with their affiliates, wield unfathomable power over corporate America. Is the new Intel boss, or any major corporate head, willing to risk their job and stand up to the Wall Street gang of thieves, while doing what is right for the company and country in the long term? Will they be able to turn down huge personal incentive plans, designed to enrich the Wall Street elite?

The SEC, not a law passed by Congress, allowed for stock buybacks. “We The People” are getting screwed!

It’s time to demand that Congress immediately outlaw corporate stock buybacks. Wall Street, government financial regulators and top corporate executives have shown they are not worthy of our trust.

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