If You Ask Me: A Global Banker Reflects on Our Times
Wriston, Walter B.
Unpredictable Is a Dangerous Country
Why Capital Investment Is Slowing Down
There isn't any way you can earn enough on a capital investment today to make it profitable. That's the real reason it has slowed down. The stock market is totally unhooked from the real performance of individual companies. I was out at Ford the other day, shaking my tin cup looking for some business. Their chief financial officer said to me: "I'm going to earn a billion seven this year, yet I can only sell stock at two-times earnings. What do you say to that?" I said: "I guess I'll catch a plane." There is no answer to that.
General Electric, another example, earned a billion-odd last year. The chairman's stock options are all at 57 and the stock's selling at 45. There isn't a company left in America whose stock price reflects any reasonable multiple of earnings. That being so, you have to cut back on capital investment.
There's a lot of conversation from recovery of capital assets to accelerated depreciation and all of that. One study indicates that if you use the cash generated by depreciation, instead of borrowing, you come out even at the end. That's not very popular among businessmen. But neither is sluggish capital investment.