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Hailed as a lifeline for American businesses, the 2017 Tax Cut and Jobs Act (TCJA) is starting to do more harm than good, new research finds.
Why it matters: After prioritizing debt reduction and business investment in the first half of 2018, companies have dramatically changed course. They are now spending more on share buybacks and dividends than they were paying in taxes before the tax cut, ratings agency Moody's finds.
"The TCJA is positive for cash flow but even an optimistic view of that savings pales in comparison to the jump in share buybacks in 2018 and [the savings] can be wiped out entirely by even a modest change in share buybacks," Christina Padgett, senior vice president at Moody's, tells Axios.
Details: Moody's studied 100 non-financial U.S. companies with large cash holdings and found that in the second half of the year companies spent about half as much on debt payments as they had in the first quarter and increased buyback spending by more than 60%.
Moody's worries are confirmed in the latest U.S. GDP report, writes MarketWatch's Caroline Baum.
Why you'll hear about this again: New research also confirms that workers have seen de minimis benefit from the tax cut. Just Capital, a not-for-profit that tracks the Russell 1000 index, finds that workers' share of the tax rebate has been just 6%.
My thought bubble: While companies have long used share buybacks to pump their stock price and deliver for executives and shareholders, the TCJA is underpinning an increasingly distorted market and further increasing the divide between those at the top and everyone else.
The U.S. has the largest gap in the world between men and women when it comes to trust in business, a survey of more than 33,000 global respondents from PR firm Edelman shows.
What it means: The report finds American women are far less trusting of their own employer, business overall and CEOs. While women were less trusting of institutions broadly, the study found that the "trust gap" was particularly large when it came to business.
Interestingly, the lack of trust is coinciding with a "profound" 22 percentage point increase in women's engagement in news, notes Lisa Kimmel, president and CEO of Edelman Canada, who oversaw the report.
Hedge funds have delivered subpar returns for more than a decade, but a new survey from Preqin finds many investors are planning to stick with them because they fear another sharp market downturn is coming.
What it means: Half of the investors surveyed said their hedge fund allocations failed to meet expectations, and only 37% believe 2019 performance will exceed 2018’s levels. This follows an Axios analysis that found hedge funds had underperformed the S&P 500 by more than 100% since 2009 and less than 1% of the gain in Americans' financial assets has been in hedge funds since 2015.
"This is a pivotal moment for the hedge fund industry," Amy Bensted, Preqin's head of hedge fund products, said in a release. "Fund managers may be optimistic about their longer term relationship with investors, but they will need to work hard in the coming months to effectively attract and retain capital."
Samsung reported its weakest profit in more than 2 years in the first quarter, as its core semiconductor business booked a 64% drop in operating profit.
Why it matters: Samsung's problems are part of a major reversal in semiconductor sales that's happening around the globe. Worldwide, there was a 15.5% drop in sales from Q4 2018 to Q1 2019.
After a surreal sales explosion from 2016-2018, this year has seen a significant pullback, the biggest on a 3-month moving average basis since the financial crisis, according to data from World Semiconductor Trade Statistics.
Yes, but: As the chart makes clear, sales are still incredibly high and semiconductor companies have delivered solid second quarter guidance.
Illustration: Sarah Grillo/Axios
Kia Kokalitcheva reports: Earlier this week we marveled at how news of WeWork's confidential IPO filing hadn't leaked, despite having submitted it last December. We also should have noted the import of that particular month, since it was the last opportunity for WeWork to be considered an "emerging growth company."
The bottom line: Companies with less than $1.07 billion in revenue for their most recently-completed calendar year qualify for certain benefits that make the IPO process easier.
WeWork, which generated over $1.07 billion in full-year 2018 revenue, isn't alone. Lyft filed confidentially for its IPO last December while it also remained under the EGC revenue threshold. For both, benefits included:
We could see more pre-IPO companies take this approach, says Lise Buyer, founder of IPO consulting firm Class V Group.
• "The keys will be how quickly is a company hoping to reach the public markets and how close is that company to being on file before the calendar year changes."
Yes, but: Most tech companies going public these days qualify as EGCs anyways—94% of U.S. listings in the first nine months of 2018, per EY—so this dilemma only affects a small number of large, well-known issuers.