Executives report that they have finally finished the number crunching that has been the topic of discussion for weeks now regarding the new budget changes. One board member told us “The nerds in accounting kept complaining about how many expense reports we’ve been sending lately. After looking into it, we’ve found a rapid uptick in hitman related expenditure.” Confirming recent suspicions that vendors did take note of the recent demand increases and decided on a market adjustment industry-wide. Our source did not confirm that these new layoffs were due to the investigation results, but inside rumor is saying that’s the case.
Layoffs: that one weird trick to solve all business problems, the working class hates it!
Business Actuary: “So you fired all the superfluous VPs and middle managers, right?”
Boeing HR, drawing a big red line through the Quality Control and Safety Assessment departments
Actuary: “Right?!”
I understand the actual market reasons that buybacks and layoffs raise a stock price, but it’s always been counter-intuitive to me that shrinking the workforce that actually produces the capital and divesting money that could have been used to grow the company would be seen as positive indicators to investors.
There is a strategy, pioneered by the old GE C-levels, of spinning out operations and outsourcing departments in such a way that your real business is simply accumulating rent-generating properties. Rather than operating a factory that makes light bulbs or turbine fans, you own the factory and lease it to a smaller and less profitable company that actually runs it. Rather than paying engineers to design the next iteration of airframe, you look for a small company of draftsmen that has a new airframe and buy it, then fire all the draftsmen and license the specs on the airframe design the company owns.
When you have very cheap borrowing costs and you can identify instances in which start-up companies paid their employees below the market rate for their cutting edge work, you can find huge arbitrage opportunities. Take none of the risk of a tentative project, turn the owner of the company into a mega-millionaire overnight, and dispense with the labor costs associated with professionals.
Over the long term, this destroys the base of knowledge you need to make iterative improvements to any of the shit you’re now leasing out to third parties. So you’re stuck with a more traditional air frame for decades, you straight up lose the ability to produce wide body jets like the DC-10, and the folks you outsourced all the real physical labor have no long-term interest in quality control since everyone knows they’re disposable.
But by the time that moment rolls around, you’ve made yourself a billionaire several times over and diversified your portfolio out of your own company’s stock. You’re untouchable and its someone else’s problem to deal with a company coasting on fumes and broken promises.
Here’s the real story. Those few years of near zero lending got corps hooked on the Yellen yayo and they ain’t been right since. Now the only option is somehow to gut your operation expenses to offset your batshit crazy capex.
Because many investors can’t see past the next quarterly report. Value investing is hard and requires homework.
Social Responsibility is not only making your workers build houses for the poor, it’s having enough cash in hand to take care of them when times are harder.
