Sacrificing the Future

The recently released Economic outlook from the Carlyle Group, titled “The search for yield and business investment”, focused on why corporate investment has been so weak in the past few years, despite record low interest rates. With income streams from “safe” investments (cash and government bonds) at record lows, it is only natural that investors look elsewhere. Companies are loath to disappoint on the dividend front, even if sales or free cash flow generation has disappointed. This is a phenomenon at play all round the world, including in Australia, where payout ratios are at all time highs, despite flat earnings these past few years. Considering the importance of private sector investment to productivity growth and job creation, the negative impact that QE, ZIRP and now NIRP have had on investment and payout decisions in boardrooms around the world is arguably their most serious side effect. This is a subject discussed in detail at the link, where we look at the seven things companies can do with their capital, and why Zero Interest Rates Encourage Companies to Sacrifice their Future (VIEW LINK)