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The coming long-run slowdown in corporate profit growth and stock returns [pdf] (2023)

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Re: The coming long-run slowdown in corporate profit growth and stock returns [pdf] (2023)

#21

Post by nostrademons »

darby_nine wrote: post #2

Very interesting paper. > I show that the decline in interest rates and corporate tax rates over the past three decades accounts for the majority of the period’s exceptional stock market performance. It's interesting that they've shown this to the exclusion of other narratives, mainly frontier markets like semiconductors and software allowing "easy" creation of value. I think this is partially why investors are so ea…

Semiconductors and software have created enormous amounts of value for the companies that own them, but the Fed usually thinks in macroeconomic terms. For the macro economy, the effect of technical development on overall corporate profits is much more muted. Creative destruction destroys old industries as much as it creates new ones. For example, there's a TV show "Mad Men" about the dominance of Madison Avenue advertising firms; Google and Facebook have completely destroyed this industry. Berkshire Hathaway annual reports from the 1970s and 1980s used to say that the local newspaper for each major metro area was a natural monopoly and reliable source of corporate profits; now, this industry has been reliably commoditized by the Internet.

Of course, the creative destroyers in question would much rather focus on the "creation of value" narrative, because it avoids attracting attention (and competition or regulation) from the industries that they're about to destroy. So there are pretty significant information distortions in the popular narrative.

Interest rates and corporate taxes have the property that they affect the whole market, which makes them much more useful to the Fed. If you bought NVidia in 2022 or Apple in 1998, congrats, you made a good investing call. But if you bought the S&P 500 in 2009 and are congratulating yourself on your 600% returns over the decade, you should know that most of that is because of low interest rates, and if the low interest rate environment unwinds, so will your stock portfolio.

Re: The coming long-run slowdown in corporate profit growth and stock returns [pdf] (2023)

#23

Post by [deleted] »

chrisco255 wrote: post #11

It's worth noting this is just one person's opinion, it's not an opinion of the Fed itself. The paper analyzes corporate profits on the basis of interest and tax rates alone, but ignores other monumental shifts in global markets over the past few decades like globalized supply chain networks. It's probably true that the efficiency gains from globalization have already passed their peak, but that would have as much of…

[deleted]

Re: The coming long-run slowdown in corporate profit growth and stock returns [pdf] (2023)

#24

Post by iwishiknewlisp »

chrisco255 wrote: post #11

It's worth noting this is just one person's opinion, it's not an opinion of the Fed itself. The paper analyzes corporate profits on the basis of interest and tax rates alone, but ignores other monumental shifts in global markets over the past few decades like globalized supply chain networks. It's probably true that the efficiency gains from globalization have already passed their peak, but that would have as much of…

> efficiency gains from globalization have already passed their peak

Is this true? Aren't there a ton of developing nations that have rapid debelopment that will increase efficiency of different industries as they grow?

Re: The coming long-run slowdown in corporate profit growth and stock returns [pdf] (2023)

#25

Post by psunavy03 »

nostrademons wrote: post #21
darby_nine wrote: post #2

Very interesting paper. > I show that the decline in interest rates and corporate tax rates over the past three decades accounts for the majority of the period’s exceptional stock market performance. It's interesting that they've shown this to the exclusion of other narratives, mainly frontier markets like semiconductors and software allowing "easy" creation of value. I think this is partially why investors are so ea…

Semiconductors and software have created enormous amounts of value for the companies that own them , but the Fed usually thinks in macroeconomic terms. For the macro economy, the effect of technical development on overall corporate profits is much more muted. Creative destruction destroys old industries as much as it creates new ones. For example, there's a TV show "Mad Men" about the dominance of Madison Avenue adve…

Interest rates have been all over the map over the last 60 years, including double digits in the 80s, and yet low-cost index funds have been a reliable driver of wealth that entire time.

Re: The coming long-run slowdown in corporate profit growth and stock returns [pdf] (2023)

#26

Post by jandrese »

GenerWork wrote: post #10
financiergoose wrote: post #5

I'm sure absurd parasitic government interference, lawfare, and shareholder activism in public corporations has nothing to do with all the good companies going private, ergo smart people telling the lawyers to go to hell, old people with pensions hardest hit.

At this point, I'm not sure why you'd want to go public unless it's simply to cash out ASAP. Everything you just described seems like major hell to deal with.

The usual reason would be because you need a large infusion of capital to expand your successful business into a major corporation. Slow growth might be a slow death if some other bigger company gets into the space and eats your lunch. I don't disagree that too many companies go public with little plan beyond "make lots of money for the founders", but there is a time and place for it.

Re: The coming long-run slowdown in corporate profit growth and stock returns [pdf] (2023)

#27

Post by pixelpoet »

iwishiknewlisp wrote: post #24
chrisco255 wrote: post #11

It's worth noting this is just one person's opinion, it's not an opinion of the Fed itself. The paper analyzes corporate profits on the basis of interest and tax rates alone, but ignores other monumental shifts in global markets over the past few decades like globalized supply chain networks. It's probably true that the efficiency gains from globalization have already passed their peak, but that would have as much of…

> efficiency gains from globalization have already passed their peak Is this true? Aren't there a ton of developing nations that have rapid debelopment that will increase efficiency of different industries as they grow?

There aren't a lot of Indonesias left.

Re: The coming long-run slowdown in corporate profit growth and stock returns [pdf] (2023)

#28

Post by calvinmorrison »

financiergoose wrote: post #14
GenerWork wrote: post #10

Earlier quoted context omitted.

At this point, I'm not sure why you'd want to go public unless it's simply to cash out ASAP. Everything you just described seems like major hell to deal with.

I'm a founder, and I have zero intention of ever going public for these exact reasons.

I think we just call that a small business owner.

Re: The coming long-run slowdown in corporate profit growth and stock returns [pdf] (2023)

#29

Post by toomuchtodo »

calvinmorrison wrote: post #28
financiergoose wrote: post #14

Earlier quoted context omitted.

I'm a founder, and I have zero intention of ever going public for these exact reasons.

I think we just call that a small business owner.

I would not consider Stripe to be a small business, an enterprise not considering going public (but still providing liquidity to those seeking it) [1]. Do you want to be beholden to public shareholders and potential activist investors if your money printer works without need for them? Perhaps it is more optimal to remain in control vs cashing out and have your control potentially diminished. It is okay to leave money on the table (by not going public in an attempt to maximize gains on shares held through potential public market exuberance) depending on what you are optimizing for.

[1] https://www.axios.com/2024/02/29/payments-stripe-never-go-pu...

Re: The coming long-run slowdown in corporate profit growth and stock returns [pdf] (2023)

#30

Post by legitster »

I kinda wonder how much of this is chicken vs egg. Was corporate profit growth only what it was because of long term low interest rates? Or did low interest rates encourage passive investments and low innovation?

Also, the elephant in the room is retirement. Aging populations represent a huge slowdown across the economy - and every year brings the highest percentage of non-working adults humanity has ever seen. For all the ink spilled over innovation and growth and etc this is going to be the real market wrecker.

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