What Are Mortmain Statutes?

For almost all of civilization except for the past century or so, land rather than business ownership was the primary mechanism to acquire economic power (and by extension, the social and political power that can flow from economic power).

In medieval England, the monarchs did not like the idea of people transferring their estates in land to the Catholic Church because such a gift really was a “forever” gift since the lifetime duration of the Catholic Church’s property interest was potentially infinite.

This possibility especially distressed King Edward I, as the baron rebellion that led to the Provisions of Oxford in 1258 meant that he was collecting less income from the noble class and instead began to rely upon death taxes and estate administration to offset this income gap.

In the eyes of King Edward I, the Catholic Church was screwing him over in two grounds. First, it was gaining … Read the rest of this article!

PREMX: The Excellent Performance of the T. Rowe Price Emerging Markets Bond Fund

The T. Rowe Price Emerging Markets Bond Fund (PREMX) is one of the few bond funds with a historical record of delivering returns that are competitive with equities while also giving its investors current income that you’d expect from investing in government debt.

One of the few markets that is not in a bubble territory right now is lower-tier government debt. Everything else looks severely overpriced. Governments like Germany, Switzerland, and the United States are currently paying their bondholders interest that will almost certainly trail inflation over the coming decades, and thus, will leave such investors poorer in 2026, 2036, and 2046 than they were in 2016 (the only reason to make such an investment right now is for liquidity purposes). Meanwhile, large corporations like Microsoft are issuing thirty-year bonds that barely pay 3%, which like large governments, has almost no chance of giving its debtholders a return that will … Read the rest of this article!

ExxonMobil: Dividends When The Buybacks Stop

In my recent Wal-Mart article, I mentioned that one of the risks of owning stock in a company reliant on share repurchases is that there is little recourse left when business conditions deteriorate and there is not enough retained earnings to continue executing a repurchase-reliant strategy to build shareholder wealth.

To get a glimpse of a real-life example, take a look at what is going on at ExxonMobil right now. Between 2000 and 2014, ExxonMobil retired enormous amounts of stock. Exxon had 6.9 billion shares outstanding in 2000, and reduced it to 4.2 billion by 2014. Those 2.7 billion retired shares ended up reducing the share count by 3.5% annually.

In 2000, Exxon was generating $16 billion in profit. By 2014? $32 billion. Based on profits alone, you would have expected earnings to grow from $2.41 to $4.82 over those fourteen years. But because the Exxon share count was lower, … Read the rest of this article!

Simon Property: High Stock Price, High Debt

Simon Property (SPG) has become quite the fashionable stock since 2012. For almost all of Simon Property’s history, the real estate investment trust (REIT) traded somewhere between 13 and 17x its annual funds from operations. That’s about what you’d expect from an outlet and regional mall landlord. You could reasonably argue that the difficulties in filling malls with tenants should have brought the valuation down to the 13 range, or you could have argued that the low interest rates and generally rising property values should put Simon Property towards the 17 end of that range.

You wouldn’t think that too many people would argue that Simon Property deserves to trade above the end of its historical 17x funds from operations rates.

But now, Simon Property trades at $220 compared to its expected funds from operations figure of $10.60 per share. That’s a P/FFO ratio of 20.7. The stock, which has … Read the rest of this article!

Wal-Mart Shareholders Should Love A Jet.com Acquisition

Over the past eight years, the entirety of Wal-Mart’s (WMT) earnings growth has come from a combination of cost cuts and share buybacks. Wal-Mart made $13.5 billion in net profits back in 2008, and this year it is only expected to make around $13.3 billion profits. Despite making $200 million less in expected 2016 profits compared to the 2008 period, Wal-Mart shareholders have nevertheless experienced earnings per share growth from $3.42 to around $4.25 because Wal-Mart repurchased 800 million shares of its outstanding stock to bring the outstanding share count down from 3.9 billion to 3.1 billion.

It plowed around $56 of its retained cash flow, and even borrow a bit, to effect these buybacks. Sales at Wal-Mart haven’t grown since 2013, and so the mega-giant retailer has resorted to financial engineering to maintain its profit margins. Namely, it has adopted a bare-bones approach to hiring employees, perpetually understaffing checkout … Read the rest of this article!