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

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

#51

Post by joejohnson » Wed, Sep 04, 2024, 6:57 PM UTC

SoftTalker wrote: post #45

languagehacker wrote: post #36

Quite a few authors have pointed out that the "financialization" of American businesses, with a focus less on innovation or investing in their workforce and more on massaging their numbers to meet shareholder expectations, has created a lot of short-term enrichment for the super-wealthy while absolutely destroying the middle class as we know it. This seems like more fuel for that fire.

Really, anyone with a 401k or similar investments has benefited from this. That's a lot of middle class folks. Your parents, your grandparents, and very likely you. It's far from limited to the super-wealthy.

The 401k is an invention that is yet to prove its efficacy. The first 401ks were opened in 1978, so if you were entering the workforce then you’d be retiring this decade!

So, we will see if this privatization of pensions really benefits us all or merely enriched a generation of asset managers while absolving the corporate and the government from providing pensions for workers.

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

#52

Post by crystalmeph » Wed, Sep 04, 2024, 6:57 PM UTC

fnordpiglet wrote: post #35

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…

I call bullshit. Tax rates and interest rates certainly help spur investment and expansion of production but it’s hard to look at the world we live in today, with electric cars that can self drive and hand held devices connected to natural language comprehending oracles of knowledge, JIT industries end to end, starships to mars for colonization in mid to late stages, etc, and think “yep the only value is the value th…

https://en.wikipedia.org/wiki/Productivity_paradox. "You can see the computer age everywhere but in the productivity statistics."

There are definitely companies that are winning from the tech you pointed out, sure. The companies that make robotaxis and the companies that sell AI subscriptions are going to make bank.

But at an aggregate level, that robotaxi means a human tax driver is no longer working, and if every sales person has their own personal robot translator for talking to foreign clients, then none of them has a competitive edge over the others, they've just had to invest that money in order to avoid giving up a competitive edge.

That OP paper's argument is basically that the only rising tide that truly lifts all economic boats is being able to keep more of the money you make instead of having to spend it on interest or taxes. So the age-old wisdom of "just buy an index fund" may have run its course, and you will actually have to pay attention to valuations instead of just blindly buying the market going forward.

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

#53

Post by [deleted] » Wed, Sep 04, 2024, 6:59 PM UTC

cs702 wrote: post #40

The abstract does a great job of summarizing the OP's findings: > 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. Lower interest expenses and corporate tax rates mechanically explain over 40 percent of the real growth in corporate profits from 1989 to 2019. In addition, the decline in risk-fre…

[deleted]

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

#54

Post by darby_nine » Wed, Sep 04, 2024, 7:00 PM UTC

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…

> Creative destruction destroys old industries as much as it creates new ones.

Yes, of course, but this frequently comes with significant productivity benefits. This is what I'm referring to when I say "creating for free". These marginal productivity improvements are going to be harder and harder to come by over time. Huge fan of Schumpeter, btw.

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

#55

Post by Damogran6 » Wed, Sep 04, 2024, 7:00 PM UTC

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.

Going private means they don't have to disclose their financials...this is not the positive you think it is.

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

#56

Post by paxys » Wed, Sep 04, 2024, 7:01 PM UTC

It'll be interesting to see what this analysis looks like today, considering there have been 2+ years of substantially higher interest rates since this paper was published.

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

#57

Post by yieldcrv » Wed, Sep 04, 2024, 7:02 PM UTC

cs702 wrote: post #40

The abstract does a great job of summarizing the OP's findings: > 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. Lower interest expenses and corporate tax rates mechanically explain over 40 percent of the real growth in corporate profits from 1989 to 2019. In addition, the decline in risk-fre…

I think more stock traders should be bond traders, or learn how that seemingly boring market works.

Too many people are stuck on technical analysis concepts from the 1980s because their first exposure was related to them.

The bond market is such a larger market than the entire stock market that its very easy to quantify the money flows out of the central banks, into that market and to other markets such as the stock market. How people are aiming to frontrun central bank behaviors.

Then it no longer matters if a PE ratio doesn't match your historical sector expectations, it no longer matters if an RSI is in overbought territority for longer than you thought. You dont have to rationalize your inadequate trades as “the market being irrational longer than you can remain solvent”, you can just make better trades understanding where the money is going, how it behaves.

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

#58

Post by wiz21c » Wed, Sep 04, 2024, 7:02 PM UTC

cs702 wrote: post #40

The abstract does a great job of summarizing the OP's findings: > 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. Lower interest expenses and corporate tax rates mechanically explain over 40 percent of the real growth in corporate profits from 1989 to 2019. In addition, the decline in risk-fre…

> decline in interest rates and corporate tax rates mechanically explain over 40 percent of the real growth

I interpret that as : "capitalists have taken over the control of our governments"...

Is that right ?

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

#59

Post by Ekaros » Wed, Sep 04, 2024, 7:03 PM UTC

TylerE wrote: post #49

anotherhacker wrote: post #48

Earlier quoted context omitted.

Not quite. This behavior leads to firing of middle-class workers. John Deere just laid off 300 workers, moved the factory to Mexico, engaged in buyback, and gave the CEO a huge pay. So, yeah, it helps your 401k, but in the mean time you don't have a job. And if you do have a job, your salary is not increasing in line with inflation...

Companies should be prohibited from doing buybacks for, say, 5 years, after any layoff.

Just straight up ban them. Have to pay taxes on investment due to dividends? Well too bad for you.

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

#60

Post by darby_nine » Wed, Sep 04, 2024, 7:04 PM UTC

fnordpiglet wrote: post #35

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…

I call bullshit. Tax rates and interest rates certainly help spur investment and expansion of production but it’s hard to look at the world we live in today, with electric cars that can self drive and hand held devices connected to natural language comprehending oracles of knowledge, JIT industries end to end, starships to mars for colonization in mid to late stages, etc, and think “yep the only value is the value th…

> it’s hard to look at the world we live in today, with electric cars that can self drive and hand held devices connected to natural language comprehending oracles of knowledge, JIT industries end to end, starships to mars for colonization in mid to late stages, etc, and think “yep the only value is the value the federal reserve has created” as a federal reserve economist posits.

I agree that we're still producing new technology, but just because a certain technology is impressive doesn't mean it's going to yield a lot of value to investors or yield a lot of marginal improvement to productivity. Perhaps I'll be demonstrated wrong when we start mining asteroids and flooding the market with massive productivity shifts again, but there's not exactly any sign this is right around the corner. There's certainly no reason to assume growth as a market invariant just because of technological development has led to growth in the past.