Secular Stagnation (Or Corporate Suicide?)

Robert Ayres and Michael Olenick, INSEAD


We advanced the null hypothesis that stock buybacks will have a positive impact on the market value of a business over a five-year horizon. We find that there is a negligible chance for this to be true (with a two tail heteroscedastic p=.000023).

We find that the more capital a business invests in buying its own stock, expressed as a ratio of capital invested in buybacks to current market capitalization, the less likely that company is to experience long-term growth in overall market value.

Our findings, for US firms worth more than $100 million, suggest that long-term investors, such as pension funds, should be wary of investing businesses that have engaged in significant cumulative stock repurchases (i.e. 50% or more of current market cap.)

We find that excessive buybacks in the past decades are a significant cause of secular stagnation, inasmuch as they effectively reduce corporate R&D while contributing, instead, to an asset bubble that creates no value.

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On EROI, as a measure of what’s left in the barrel


Source; Mason Inman. Scientific American. April. 2013.

This paper makes several points about the use of EROI as an indicator of future potential.

First, for comparability it is important to limit comparisons to specific end-use a products, such as gasoline for cars or electricity for the grid, or perhaps hydrogen for fuel cells. Comparisons between different end-uses are very dubious.

Second, it is important to avoid comparing EROIs for fossil fuels stored by geochemical processes in the Earth’s crust vs nuclear power (based on a single element, uranium) vs technologies based on energy directly or indirectly from the sun.

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