Re:Why is the stock market rallying when the economy is so bad?
by esoterica on Sunday May 10, 2020 @04:25PM
(#23135850)
Why bother with a rainy-day fund? If your company has a long-term viable business you can borrow money to survive a temporary crisis. If your company's business model is permanently ruined then you are better off calling it quits and shutting the company down than setting your cash reserves on fire trying to rescue a dead company.
During a credit crisis a viable business might have trouble raising money, but with the Fed indicating that they are willing to throw money out of the proverbial helicopters, maybe people don't consider that a real concern any more.
Re:Why is the stock market rallying when the economy is so bad?
by loufe on Monday May 11, 2020 @09:02AM
(#23141612)
That's a fair point. In theory, or at least in my imagination of running a large business, I still think there is value in keeping a rainy-day fund - but you're certainly right that it doesn't seem like any large companies, aside from those flush with cash like Apple, practice
As I understand it, a good chunk of of the reason stock prices were originally so high before the crash 2 months ago was that stock bybacks were at an all time high (though of course this doesn't mean every company is doing them). Part of the reason companies are so vulnerable is that a large chunk profits were being used to undertake them - not being kept for reinvestment, debt repayment, or rainy-day funds.