A primer as to one of the major reasons why earnings are declining:
Wolf Richter: Wrath of financial engineering: It's now eating into earnings
In short the low interest rates have led corporations to buy back shares rather than invest in R &D. This has increased the debt on their balance sheets and, at the same time, left the companies to stagnate.Wolf Richter wrote:That was in the second quarter. Since then, conditions have worsened. Moody’s Aaa Corporate Bond Yield index, which tracks the highest-rated borrowers, was at 3.29% in early February. In July last year, it was even lower for a few moments. So refinancing old debt at these super-low interest rates was a deal. But last week, the index was over 4%. It currently sits at 3.93%. And the benefits of refinancing at ever lower yields are disappearing fast.
What’s left is a record amount of debt, generating a record amount of interest expense, even at these still very low yields.
First company under the spotlight: McDonalds. We are all aware that it is synonymous with shit food - now many of its fast food franchises are struggling to stay afloat. In the US, 700 are slated to close, but that is by no means the whole story:
McDonalds Franchise owners confirm fast food giant is facing its final daysWe are in the throes of a deep depression, and nothing is changing,” a franchise owner wrote in response to a financial survey by Nomura Group. “Probably 30% of operators are insolvent.” One owner went as far as to speculate that McDonald’s is literally “facing its final days.”