It’s not quite so bad to be president, but Barack Obama can’t be looking forward to his final two years in the White House. After last week’s Republican takeover of the Senate, Obama may find that sitting down to deal with Mitch McConnell probably will require all the best bourbon the new majority leader can bring from his home state of Kentucky.
 
Yet it might take more than a couple of drinks to smooth off the rough edges, since McConnell’s counterpart from the House of Representatives, John Boehner, has already warned the president not to press ahead with his promised unilateral executive action on immigration. Rather than going with the whiskey with the same name, all three seem determined to follow the example of that French royal family, the Bourbons, of which it was said they had learned nothing and had forgotten nothing.
 
Far better than to be king or president is to be chief executive of a major corporation. Their extravagant compensation allows them to live royally. But unlike presidents or prime ministers, CEOs have sway, albeit limited, over the events that affect their fortunes, at least of their companies’ stock performance and, in turn, their own remuneration.
 
According to an academic paper from the European Corporate Governance Institute (which was highlighted last week on Barrons.com by contributor Mark Hulbert), “CEOs strategically time corporate news releases to coincide with months in which their equity vests.” While they don’t have sway over the timing of regular events, such as earnings releases, or unexpected ones, such as outcome of drug trials, CEOs have discretion over things such as announcements of dividend increases or stock repurchases.
 
In any case, companies don’t put out press releases to trumpet bad news. And while CEOs might not be able to change events, they do have control over the timing of their disclosure; they can move them up or delay them.
 
The academics who authored the study -- Alex Edmans of the London Business School, Luis Goncalves-Pinto of the National University of Singapore, Yanbo Wang of INSEAD, an international business school, Moqi Xu of the London School of Economics -- found that companies issue 5% more press releases during months when CEOs’ equity vests, and when they typically cash in their stocks or options.
 
The authors also found that the stocks generated 28 basis points (0.28%) of greater returns for 16 days in the months of the disclosure of discretionary news items, which by sheerest coincidence took place more often when the equity of the chieftains got vested. In dollar terms, those extra 28 bps (short for basis points and pronounced “bips”) translate into a gain of $14,504 on the average annual CEO vesting equity of $5.18 million. Those sums, they note, are “in line with the gains to illegal insider trading.” Moreover, they add, “these gains come at little cost: Changing the timing of news releases is legal, and involves less effort than other actions to boost the stock price, such as cutting investment projects.”
 
Or repurchasing shares, but the associated effort continues to be little impediment to managements. That’s especially true for companies that can tap global capital markets (with apologies to Dire Straits) for money for nothing and bips for free.
 
U.S. COMPANIES have been able to pump the deep well of money filled by the Federal Reserve’s bond-purchase program known as quantitative easing. The third phase, QE3, has come to an end, but, not to worry, there is another font from which to suck up liquid funds. As the European Central Bank keeps the cost of money at zero (or even below zero for banks’ stashes at the ECB), bond yields have collapsed across the Continent.
 
Savvy American companies are taking advantage of that, and there is no more savvy borrower than Apple   (ticker: AAPL.) Even with $155 billion in cash and marketable securities on its balance sheet, the company whose smartphones, computers, and tablets are objects of desire in the Forsyth household (the old man being the obdurate exception) and everywhere else, last week issued bonds denominated in euros at record-low interest rates.
 
Apple sold 2.8 billion euros ($3.5 billion) of notes due in eight and 12 years at respective yields of 1.082% and 1.671%. That’s less than the yields on comparable bonds of the governments of Spain and Italy. Then again, Moody's Investors Service rates Apple Aa1 while Standard & Poor's gives the Cupertino, Calif., giant an AA-plus, the same rating it accords Uncle Sam, and higher than those sorry sovereigns.
 
Activists such as Carl Icahn have been pressing Tim Cook, Apple’s CEO, to return more cash to shareholders to boost the stock, which he contends is “dramatically undervalued.” Stock buybacks and increased dividends so far have managed to lift Apple’s shares above the previous split-adjusted peak attained when it announced the iPhone 5 in September 2012.
 
With the end of Fed QE, low euro yields are likely to be increasingly exploited, according to Moody's chief capital markets economist, John Lonski. In the first 45 weeks of 2014, euro-denominated corporate bond issuance rose 15% for investment-grade borrowers and 60% for high-yield (read: junk) companies. Dollar-denominated issuance was off 0.7% for investment-grade companies, but up 1.4% for high yielders.
 
Among the latter, Société Générale’s credit team notes a number of blue-chip U.S. companies that are candidates to borrow to fund buybacks of lagging stocks. The poster child for that cohort is International Business Machines  (IBM), which SocGen noted recently issued $1.1 billion in floating-rate notes to help fund its new $5 billion stock buyback.
 
In addition to IBM, other potential candidates pinpointed by the bank include Viacom  (VIA), Coca-Cola Enterprises  (CCE), Motorola Solutions  (MSI), Pfizer (PFE), Target  (TGT), Deere  (DE), Mosaic (MOS), Wal-Mart Stores  (WMT), Arrow Electronics  (ARW), St. Jude Medical  (STJ), and CA Technologies (CA.) All these stocks have underperformed in the past year, despite having “significantly” cut their total of shares outstanding by 13% over the past four years, by SocGen’s tally. The relevant question is where these stocks would be without the prop of buybacks.
 
Be that as it may, while Janet Yellen’s Fed has ended its bond purchases, which helped to lower the cost of borrowing for the Treasury and corporations alike, Mario Draghi’s European Central Bank should offer U.S. companies continued cheap credit. That wasn’t the ECB’s plan, of course, but there may be more takers of Draghi’s offer of free money among American corporates than among European businesses that were meant to be the target of his largess.
 
That’s of no concern to Apple. Instead of having to pay taxes on repatriated cash, it borrows abroad to return cash to shareholders. The ECB also has made it clear that it would like a lower euro, so Apple will be repaying that debt in a cheaper currency. By having a euro liability, Apple also has an economic hedge against a rising dollar, which hurts its translation of earnings from sales of iPhones and the like in Europe.
 
In all, it’s virtually a free lunch, flowing from Frankfurt to Cupertino. Somehow, I doubt that’s what Draghi had in mind.
 
IN CONTRAST, the timeline for interest-rate hikes by the Fed moved up following the release of the October employment report Friday, at least according to the reckoning of the futures market. Based on federal funds contracts on the Chicago Mercantile Exchange, the probability of a rise in the Fed’s key rate to 0.5% at the Sept. 17, 2015, meeting jumped to 56% Friday from just 12% the previous day. The fed funds target has been pinned to the floor of 0% to 0.25% since December 2008. Odds of a rate hike at the July 29 confab climbed to a non-trivial 36% from just 6% Thursday.
 
Last month’s data showed a continuation of decent payrolls growth -- another 214,000 gain -- while the jobless rate ticked down another tenth of a percentage point, to 5.8%. Wage growth remained limp, however, with average hourly earnings up 0.1% last month and up just 2% from the level a year earlier.
 
But according to a report from JPMorgan Chase economist Michael Feroli, wages will rise with a lag after the tightening of the labor market. “We think the unavoidable conclusion is that this is a ‘hawkish’ jobs report, which will keep the Fed well on track for a first rate hike in the middle of next year (we continue to look for a June hike).”
 
Observe Philippa Dunne and Doug Henwood of the Liscio Report: “So, this is mostly what the Fed wants -- employment growth with no inflationary pressures. While the flatness of hourly wages should please inflation hawks, it would be better for aggregate demand to see some wage increases for a change, but that day is not here yet.”
 
Tuesday’s balloting implies that the electorate shares this less sanguine view. Stocks, meanwhile, seem unconcerned that labor might eventually get a bigger share of profits, as unit labor costs were up just 2.4% from a year earlier. The Dow Jones Industrials and the Standard & Poor’s 500 index posted their third straight weekly advances and wound up at records.
 
As long as corporations can reduce the cost of capital by borrowing at low interest rates engineered by central banks, they can afford to pay a bit more to let workers eat some cake. Ah, it is good to be the king.