| MARKET ROUNDUP | |
| Dow | -26.99 to 18,285.40 |
| S&P 500 | -1.98 to 2,125.85 |
| Nasdaq | +1.71 to 5,071.74 |
| 10-YR Yield | -0.011 to 2.251% |
| Gold | +$3.10 to $1,209.70 |
| Crude Oil | +$0.77 to $58.76 |
Don’t like the economic data? Then just adjust the numbers again!
That seems to be the Federal Reserve’s latest plan in the wake of awful first-quarter GDP figures. You see, the gubmint numbers showed our economy expanded by a pathetic 0.2 percent in the first quarter. That was down from 2.2 percent a quarter earlier and the weakest in a year. Consumer spending, investment in nonresidential structures, trade and other industries and sectors all came in weaker than expected.
But rather than accept the figures at face value, the San Francisco Fed just cooked up a new explanation. The culprit: “Residual seasonality.”
The government already tries to adjust for seasonality in the data. There’s only one holiday shopping season, for instance, so retail sales are always stronger in November than January whether the overall economy is booming or shrinking. That needs to be accounted for in the figures reported every year.
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| Retail sales numbers are just one item that is tweaked by government accountants. They are adjusted based on the season. |
But the Bureau of Economic Analysis takes a bottoms-up approach when putting together the GDP report. The Fed decided to take the BEA figures and apply a second seasonality adjustment, something called the “X12-ARIMA statistical filter.”
When you do that, miraculously, you find that GDP would’ve grown 1.8 percent! That’s nine times faster in case you don’t have your calculator handy.
Do the same thing for the last several years and guess what? Growth turns out to actually be about a percentage point and a half stronger in every single first quarter.
Me? I think I’m going to drive over to the bank and ask them to apply the X12 adjustment to my checking account. Voila! I’d have nine times more money in there!
Or how about zapping my back yard with the X12 magic blaster? Suddenly I’d have much more room for a pool, hot tub and maybe even an entire half court for my stepson to shoot hoops on! The possibilities are endless.
| “When you do that, miraculously, you find that GDP would’ve grown 1.8 percent!” |
The truth is, it’s almost impossible to estimate down to a tenth of a percentage point how much a $17.7 trillion economy grew or shrank in any given three-month period. I’m sure the civil servants in Washington do the best they can. But when you have the Fed trying to explain away lousy numbers just because they don’t fit the narrative of policymakers, it really does border on the absurd!
Am I off-base here? Does this make you question the numbers coming out of Washington even more? Do you think the economy essentially flat-lined in the first quarter, or did it really grow nine times as fast? What are the implications for policy and stocks? Throw your hat into the ring at the Money and Markets website when you have time!
| Our Readers Speak |
The lively discussions are continuing over at the website, by the way, so I do hope you chime in.
Reader Chuck B. shared some thoughts on energy stocks, and who else may be getting on board with them at these beaten-down levels. His take:
“I saw elsewhere that some big names agree with you about oil, Mike. Warren Buffett now owns 14% of Phillips 66. T. Boone Pickens is in oil in a big way also with Helmerich & Paine, Parsley Energy, Eclipse Resources and Range Resources.
“PSX, of course, is in refining and distribution. HP is a contract driller, and the others own drilling rights, some in oil, some in gas. Pickens seems to me to be more out on a limb than Buffett, but if he’s right, he should make a ton.”
Thanks for sharing, Chuck. I’ve definitely seen more “smart money” buying into energy stocks and bonds over the past several months, and that’s one of many reasons I believe this is the best buying opportunity in energy stocks in three decades.
Reader Jack H. added: “As a subscriber to Safe Money for many years, I wonder what I can expect when your new interest is creating a subscription service dealing with petroleum opportunities. Please advise.”
Thanks for the question, Jack. Safe Money is a longer-term, investment-oriented newsletter that invests in stable, safe, highly rated stocks with longer holding periods – often paying well-above-market dividend yields.
There’s nothing wrong with that approach for your core, conservative funds – and I’m happy with the gains we’ve been spinning off on many positions. I include some energy positions in the letter, as you know.
But some of our investors are more aggressive. They’re willing to peel off a portion of their funds to invest in shorter-term trading opportunities, including in stocks that have a higher level of risk, but that could multiply their capital many times over. That’s what my Energy Stock Alert service specializes in. I hope that clears things up.
Finally, Reader John weighed in on the rail safety issue by saying:
“This is a great time to discuss whether or not Amtrak should be privatized. The Federal government does not need to run a train service. The money generated from the sale of Amtrak, NPR, public television, and the post office could be used to decrease federal spending and help save the dollar. Also, if a flat tax was implemented, the IRS could be severely downsized.”
So what do you think of John’s suggestions? Or Chuck’s? Should more of the government’s operations be privatized? Should you follow the big money, and add more funds to energy investments? Use this link to the website to add your thoughts.
| Other Developments of the Day |
Why do accidents like the Philadelphia Amtrak crash happen? The New York Times suggests it’s because we spend a lot less than other countries on rail safety and modernization.
The U.S. spends less than 0.1 percent of GDP on railroad systems, only one-fourth what they spend in the U.K. and one-sixth what countries like France and Australia shell out. The numbers look equally dismal on a per capita basis, with countries like Japan that have high-profile, advanced rail systems spending almost triple that amount.
J.P. Morgan Chase, Barclays PLC, Royal Bank of Scotland Group PLC, and Citigroup Inc. will plead guilty to criminal charges of conspiring to manipulate the price of U.S. dollars and euros, the Wall Street Journal reported.
Meanwhile, UBS AG, which received immunity in the antitrust case, will plead guilty to manipulating the Libor benchmark after prosecutors said the bank violated an earlier agreement meant to resolve those allegations of misconduct. UBS will also pay an additional Libor-related fine.
These fines and charges are above and beyond the other settlements and agreements related to manipulating interest rates, commodities, mortgage markets, and baseball and apple pie (I’m kidding about the last one … I think).
Any of these stories get your blood boiling? Then let me hear about it at the website.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Comparing US railroads with foreign railroads can be a bit inconclusive. US railroads use very few people to run a lot of machines to take care of the track structure. Most foreign railroads are government owned and run, there are exceptions in Japan and the UK. The foreign are viewed as make work operations, US railroads are private firms. US railroads have a long history of investing in technology to make them more efficient and cost effective. Foreign roads lag behind in new technology, however they are very good at spend tons of money on high speed rail. But distances are much shorter there than here except in the NorthEast Corridor. The US railroads are spending more on their track than forty six states are spending on their roadways.
Yes, I think you’re way off base. This should be a zero sum game, so if Q1 goes up, Q2, Q3, and/or Q4 must go down to compensate. So what difference does it make in the bigger picture?
“Am I off-base here?” … No you’re not. Its just another bout of a type of “social engineering” where the “powers that be” are simply misrepresenting things to manipulating public opinion to accomplish the things they want to accomplish. And with the way many people are right now it works (because no one has been really hurt yet on account of it). But let the country end up falling into the greatest depression ever … and then watch everybody change their tune. You have to remember … we live in a nation that not only elected an Obama to be president … they even did it twice! And they’re probably going to elect Hillary now. The only thing that can straighten us out now is great pain. So that’s probably what we’re in for.
In Portales , NM we are getting real bargains on food that is coming in from the Wal Mart stores that are closing in OK. Are you aware of these closings?
They say figures can’t lie but liars figure. Yes, we have seen liar’s figures in the past (glo-ball warming) but this takes the cake! and you wonder why they call those studies sadistical regression. Just torture the numbers long enough and they will give you the answer you want while begging for mercy.
As for the latest from the banks, I always thought that something was up. The Euro basics did not support the sky-high $1.50. In fact, I wouldn’t have given you $1.25 for it at the time and I was in negotiation to purchase an assembly machine made in France that was priced in euros. What was refreshing was the admission of criminal culpability. It’s about time. And as for UBS (you can fill in the blank for the acronym) it has always been Libor, Libor uber alles. OK, I know I have exceeded my ration of puns for the day, but that is only because the news is refreshingly punny, for once.
Hey mike will the intrest rate go up this year r not until 2016 what’s your take. Thanks
Once again we see how the poor taxpayer is being hoodwinked by revising economic figures, this time by the current “Magician” Janet Yellen. It’s more government Bull and we could really use a private publication that reports the real numbers, including the M3 Money Supply, the real one. I think there is one: Shadowstats.com. Finally, I believe I can die happy if financial writers, at least, remember it’s “Data ARE,” not “Data Is” dammit! It’s a plural noun and most of us used to use the correct verb form until our educational system fell apart.
I’ve never put my trust in the federal numbers (of any sort), and this is now part of my seemingly permanent view given the data manipulation/stunts of the last 6 years.
My doubts about what data to trust first showed up in a measurable way in ~ 2007. In the summer of 2007 I began to see noticeable differences between what the fed was quoting as the 1,10 and 30 interest rates, and what the market was actually doing rate wise spanning those time periods. This small thing (at the time) caused me to focus more on whether the data was being verified, and by reasonable means. Long story short … many metriics began failing the smell test, to say the least. By 2009 we started to see the underlying formulas being changed to suit political objectives, which as an academic, data tampering is a very large no no, not that it doesn’t go on (look at the global warming data tampering for instance).
Right now my concerns are more about the wild oscillations of data, and the breakdown of inter-data normal relationships. That vein in my temple is beginning to tick a bit again, and so I’ve begun much more wary about where things will go (read jump to) next.
Bottom Line: when traditionally predictable information becomes strangely unpredictable trust goes out the window. And right now I’m hanging outside the window from the window sill by my finger tips, as are many other investors and US corporations. The current leadership in America is the root cause for this diminished trust level, and I fear that the diminished trust will shortly turn to wholesale distrust, and what then?
Friend…you have got to be kidding me..? Big and Multinational Corporations are awash with Cash….? If you mean the lil guys…investment and business wise I concur…However,the Big Companies and Banks… just use their Cash to generate POLITICAL…traction..and its all Good for the Good Ol’ boys!
I never put any faith in any government numbers. I believe they are ALL cooked up. Best to just ignore them all! I do, for example. look at the ADP employment number because it is, at least based on some real numbers!
A great example: GNP includes government spending as a POSITIVE, when all government spending is actually a DEBT, against taxes levied on the productive private economy, or nowadays, by borrowing against future taxes. Just another political lie. If you subtract government spending from GNP, as logically should be done, the figures don’t look nearly so good these days. That means subtracting from a GNP that doesn’t include government spending in the first place.
Aloha Friends! Its simple really…just apply the Economic Empirical EVIDENCE…..if the Government ‘Hocus Pocus’ on Number Adjustments….were Correct…the Economy would be in far better Shape at the moment than it is…Correct? I rest my case your Honor
OMG! Don’t get me started! In America absolutely EVERTHING should be privatized!!! The Govenment should get the hell out of EVERTHING!! No farm subsidies, NOTHING! The free market is the only posibility of sucsess!
First and Foremost…..The International Banks are To Big to JAIL…so they just pay Fines..Hey Mr IRS…are those Tax deductible?…Also,when in the reasonable past has a well deserving Banker…EVER Gone to Jail…? Home Depot does Better than Lowes for One Big reason….Ta da!! lolol MORE…Stores…….close to 20% more…plus the Stores are Bigger…which means More Inventory=More sales..gosh that was tough!
“J.P. Morgan Chase, Barclays PLC, Royal Bank of Scotland Group PLC, and Citigroup Inc. will plead guilty to criminal….” I think that this will go on until banksters start serving hard time. Fines dont get it. And, how can the economy recover since we shipped our jobs overseas starting with Reagan’s admin, and on thru NAFTA and the new fast track. We send away technology, and grant low tariffs on importation of the goods when they come back. Of course the economy is going down the drain. We can’t “create” jobs without entrepreneurs, both large and small, and discretionary income to buy goods. Of course we will need martial law when everyone realizes we have been screwed.
I have questioned before here, what is the Fereral Government doing with the many billions of Dollars that it is extorting from the Big Banks in the form of “fines” for misconduct? And also, if the banks are pleading guilt to these alligations, why isn’t anyone going to jail?
I guess it is easier to prove a crime against an entity called a “company”, than it is against the individual people who made the decisions for the company. Logically, prosecutors should go back to the politicians who made the confusing laws and regulations that bank and other company officers (miss)interpret for their own benefit. Good luck on that!!
I want to respond to reader John’s suggestions to sell Amtrac, NPR, Public Television and the USPS to generate income from their sales and to cut down on government spending. First, NPR and Public Television are not owned by the government and can’t be sold by the government. They both are incorporated as private corporations supported by listeners and advertisers. The USPS stopped being part of the Legislative Branch in 1971 and is run as a private entity. It must sustain itself through its fees for its services. Amtrac is technically owned by the federal government, but it couldn’t be sold since it operates at a loss and no one would buy it. Not subsidizing Amtrak would mean that all the services Amtrak provides would cease. In the end, any savings from not running Amtrak is questionable.
True enough, AMTRAC couldn’t be sold, as such, but its assets could be declared surplus and sold off, possibly in bulk, so they could be taken over by someone or some company with deep pockets. The employees could be immediately hired by the new owner. Might be a minimal service interruption, but probably no more than the recent Philly, NY shutdown. Maybe a Chinese company would be interested.
From the NPR website:
“Federal funding is essential to public radio’s service to the American public. Its continuation is critical for both stations and program producers, including NPR.â€
Oopsy… Isn’t that a lot like the Federal government owns NPR if the funding from the federal government is essential…?
Oh wait, there’s more…
“Stations receive support from many sources, including: Public radio stations receive annual grants directly from the Corporation for Public Broadcasting (CPB) that make up an important part of a diverse revenue mix that includes listener support, corporate sponsorship and grants (from the federal government).
“Stations in turn draw on this mix of public and privately sourced revenue to pay NPR and other public radio producers for programming.
“These station programming fees are a significant component of NPR’s largest source of revenue. The loss of federal funding would seriously undermine the stations’ ability to pay NPR for programming, thus weakening NPR.
Elimination of federal funding would result in fewer programs, less journalism — especially local journalism — and eventually the loss of public radio stations, particularly in rural and economically distressed communities.â€
All you have to do is listen one hour to the government propaganda to know who really owns NPR…! NPR is nothing more than the mouthpiece for the liberal progressive left which would be out of existence if it were not for federal funding…
Which is very much like the huge “bailouts†the USPS receives each year in order to pay union employees exorbitant wages and retirement.
As there is no authority in the Constitution for the Federal Govrnment to engage in any commercial business it should all repeat: ALL be privatized.
Just like the federal government… They’re all a bunch of losers…! Get the federal government out of competition with private enterprise… If there is a real need, some enterprising person will fill the void and get wealthy.
Will somebody tell me why anyone even discusses the number propaganda put out by the government…?
When a habitual liar is discovered in the work place, no one pays any attention to what s/he says… So why waste time valuable time and print with the government’s numbers… Ignore them and go on with life using numbers from trusted private sources that ignore the government numbers…!
As to Amtrak, the railroads were in private hands and were losing money. If they can’t make money they close them down. Governments do what they do. They took a losing enterprise they wanted to stay alive to service their cronies and what couldn’t be paid for with revenues, they always have the forced income of tax money to make up the losses. In other words what we don’t want to buy we will be made to pay for it another way to satisfy politicians. Most of what the govt. does these days they have no business being involved. Railroads are obsolete technology. It is far more expensive to keep them operating than people realize. Though we might not ride a train, we do have to buy a ticket.
There was a time when Children used to be responsible for the debt of Parents. It was “BONDAGE” and was outlawed.
We have come around full circle. Seems that It is now lawful. Only condition is that the Debt be taken on by the Governments, and future generations will be held in “BONDAGE”.
Some folks think that as long as this debt is reduced through inflation, it will not be a burden to the future generations. Not true. Future generations will pay through higher cost of living (lower standard of living).
There was a time when Children used to be responsible for the debt of Parents. It was “BONDAGE” and was outlawed.
We have come around full circle. Seems that It is now lawful. Only condition is that the Debt be taken on by the Governments, and future generations will be held in “BONDAGE”.
Some folks think that as long as this debt is reduced through inflation, it will not be a burden to the future generations. Not true. Future generations will pay through higher cost of living (lower standard of living)…
How about two jokes? One old and one new. Old joke: “Do you know how to tell when a politician is lying? When his or her mouth is moving.” New joke: “Do you know how to tell when the government is lying? When it publishes statistics.” They would be be funny if they weren’t so absolutely pathetic.
Coal is DEAD Invest in nat. gas It’s a no brainer!!!
I strongly disagree that investing in natural gas is a no brainier. Look at what’s happening to the monopoly utilities in Australia. They are mounting a huge campaign to discourage the use of roof mounted solar panels. It’s beginning to happen here as solar continues to improve its technology and lower its cost. Solar will make the stodgy old utilities obsolete before you know it. It’s working in Seattle where the sun never shines. It will work everyplace else it’s allowed. The no brainer is Solar City. They and companies like them own the future. Jim
Headline: Citigroup, Morgan Chase aided defunct energy trading giant Enron in disguising loans as cash in order to defraud investors.
Headline: Banks plead guilty to criminal charges of conspiring to manipulate the price of U.S. dollars and euros.
Headline: Big Banks Manipulated $21 Trillion Dollar Market for Credit Default Swaps.
Headline: US task force probes nine banks on mortgage-backed securities.
Headline: Greek Debt Crisis: How Goldman Sachs Helped Greece to Mask its True Debt.
Yes, this gets my blood boiling. When will it end?
And we punished the “too big to fail” banks by allowing them to get 37 per cent bigger. Must be nice to know you are above the law. It’s truly disgraceful how corrupt our financial system has become, and the authorities that are supposed to regulate it are just as bad. Jim
Does Union Pacific just own the rails themselves??? I remember as a Union Pacific stockholder it was in our packet with the understanding we were acquiring some of the governing. What happened with that?
I am against removing our railways – we need them as they are always a backup to move normally trucked items if something goes wrong with roadways or unions or gas supply. The trains can and do move entire truck trailers full of items. Here in Mexico where I live they deeply regret the removal of the rail system both for personal use and commercial….in fact they are discussing which tracks would be least expensive to reopen to benefit the country as they move into active Energy related situations.
Aloha Mike
I read you daily. Keep up the good work. I just read the latest assessment from Schwab. It looks like any data that was reported b4 ’96 or 97 is meanl,g lmnls.
If any of your readers knows the name of an honest bank could the post it? I would like to sleep peacefully at nights.
Reader John wrote:
“This is a great time to discuss whether or not Amtrak should be privatized. The Federal government does not need to run a train service. The money generated from the sale of Amtrak, NPR, public television, and the post office could be used to decrease federal spending and help save the dollar. Also, if a flat tax was implemented, the IRS could be severely downsized.â€
Seriously? If the government shouldn’t be running railroads that help move millions of passengers a year then they probably shouldn’t be in the road business either: charge tolls for every interstate and if they cannot make money, RIP ‘EM UP. And NPR and PBS are not OWNED by the government, therefore the government would not get a dime out of selling them. You seem ill-informed about how life works.
Reader John was spot on about all we could save with a little privatization. However, there is no way in the world that the Politicians(Dems?) are letting go of public TV or NPR . That would just leave the NY Times, MSLSD, and college as a means of indoctrinating our youth. In fact, they’re looking for MORE industries to take over n run into the ground, just like Healthcare. More control = more money. More of OUR money. Amtrak n the P.O. Are just a way to payback donors n friends. Jobs n businesses doomed to fail (Solyndra?) are currency to our shady Pols.
Should more of the government’s operations be privatized? To begin that discussion we must ask, why are they government business in the first place and what’s the down side of privatization? I say go for it.
As to the flat tax issue, if that were implemented, at least then everyone would pay the same tax rate (no deductions) and we could stop arguing about whether or not “the rich are paying their fair share”.
ARIMA is a valid forecasting tool. There is nothing wrong with using it.
The numbers obtained by the government are mostly trash. In general, in forecasting, if you “hit the mark” within 10%, that is a resounding success. (How would you like to forecast all your stock picks withing 10%?)
What is generally not appreciated is that while the actual numbers are mostly trash, the TREND is NOT. If the methodology is correlated with “reality”, then the trend generally gives a pretty good indication of what is happening.
Such a theory implies that the METHODOLOGY DOES NOT CHANGE. When a new methodology is introduced (e.g. ARIMA), it makes little sense to compare the present results with past results based on a different methodology. When they change methodology and do not either “go back” and give historical numbers based upon the “new” methodology–be suspicious, be VERY suspicious.
In many cases, it is much like holding a match under a thermometer and reading the room temperature in a freezing room; or perhaps using MANY thermometers until you find one that is broken and gives “the right” results.
tony.
I’m sure I’m on the wrong site here, but I wish your firm would address the prospect of one leaving the country for Central America (or ?) only to have the U.S. dollar lose it’s world reserve currency status and plummet in value. What would happen to Central/South American economies in this scenario? Which countries would be less vulnerable? Where would the dollar retain strength?
The figures on rail spending in Europe and Japan while accurate, are misleading. Their spending is on km per person densitiy and get more bang for the buck. If we spent only on routes that made sense, Northeast Corridor, a few west coast and the presently being considered Texas triangle, we would be a lot more effecient. The present waste is caused largely by congress wanting to continue routes (and I might add rural post offices) that make no economic sense. A bit of publicity about the worthies responsible for this during primary and general election time might be in order.
Mike, this is all well known that the government and, in many instances business economic data, is significantly altered, massaged, jaded. In order to clear up the smoke and mirrors, everyone needs to go to John Williams Shadowstats.com website. John and his team do a great job of reverse engineering out all the nonsense in economic data.
X-12 ARIMA models are seasonal Autoregressive Integrated Moving Average Models that let the data suggest an appropriate model to use to forecast or explain the data. They are far superior to just assuming a moving average or exponential smoothing model with an arbitrary smoothing constant. I’ve always respected your opinion, but in this case you are showing your ignorance of a truly superior way to filter the data that the economy is presenting.
Does it bother anyone other than me that our government considers us all idiots? we have given the government the exclusive monopoly to use force against us and with all the sophisticated armament in the world, they are having a hissy fit to ban hand guns? Then they in the process of eliminated money as we know it so that all transactions are electronic so they have no trouble tracking it. Big brother not only has your back, but both sides and the front!!
mon amie christin lagarde .le monde d aujourd’hui . c est pas facile comme vous imaginé .toute est changé / son économies son finance est son sociétés (la dermographies ) est vous comme le président de IMF .sa veux dire responsable de équilibrés les retouche financière des monde .sur un base économique défirent .de l régime passé . est faite en face de vous que le globale culture des monde ne donne pas la balance avec ce quelle fox faire . puisque la stabilisation va te demandes la nouveauté créative plus de ce qui marche . pars exemple la greece qui en train de sortir de l UN européen puisque il on aucun solution que les discipline .refusion de le peuple .a vous vu la greece en crise .pour moi non . si nous repose des System est des style bien méthodiste en physique des maths .(?) voila .est nous va cadrés le monde des jobs bien active dans toute les secteurs économique .de la technologies juste l artisanal .est je suis a ton position merci /mes a cause de l énergies est le foods .moi je ne peurs pas de sa puisque nous avons boucaus des source est méthode pour produire c est matière est courent . a cause de l énergies de puis 9 ans est nous parle d heu . je veux le monde m écoutés loin de ce que vous profitais . comme la voiture multiple fonction est électrice .est comme le System de défonce en dronne .est comme le System de life est ………..nous cherche comment renouvelé ce monde a une existe logique vies
My suspicion is that the government accountants try their best but everyone knows what the government wants and its a tough battle to be frank and honest when your job depends upon not being too far off what the boss wants.
My take is that credit is contracting and credit is by far the largest force in the economy which is causing deflation. Commodities are off by 50% pretty much across the board. Look at $CRB in stockcharts.com. It’s been happening for years now. Plus with money so cheap for so long from every country in the world there is too much capacity in virtually everything. Disposable income is falling in the US since 2008 and most new jobs that now create the supposedly <6% unemployment are part time or temporary. Look at the last job report 200,000 jobs lost and 400,000 created but the lost were full time while the created jobs were part time and temporary. Get the picture? With all the free trade based on Ricardo's Theory of Comparative Advantage we've managed to wipe out America's middle class. Obama believes in theory rather than logic.
We are in deflation! China is stimulating again to relieve loans for local communities.
Wake up and observe events and reason from those observations. Sure stocks are climbing but margin is near all time highs and companies best strategy is to borrow to buy their own stocks. In other words is that the best investment they can find? Probably because capacity exceeds demand.