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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)

#61

Post by jeffreyrogers »

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.

The problem with this theory is that by most metrics the middle class in America is doing very well. Homeownership rates are high (significantly higher than Europe), incomes are higher (again, median income in the US significantly higher than even wealthy European countries like Germany), and consumption of things like cars and other manufactured goods is higher than ever.

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

#62

Post by WJW »

wiz21c wrote: post #58
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 ?

That's what you want to read. All the paper says is that interest rates and corporate tax rates have fallen over the past three decades.

There were a variety of reasons for that, only some of which had anything to do with capitalists in the government.

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

#63

Post by frikk »

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.

I recently learned that buybacks and short selling historically have not been legal, its only in recent history that they've been standard practice en large (1982 is when buybacks were legalized, I think)

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

#64

Post by [deleted] »

wiz21c wrote: post #58
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 ?

[deleted]

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

#65

Post by ryandrake »

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.

It's a lot, but still it's only ~50% of US households[1]. So the other 50% are not benefiting at all from a rising stock market, except very indirectly (companies with happy earnings reports less likely to lay them off). And even that indirect benefit is not a given.

1: https://www.federalreserve.gov/econres/scf/dataviz/scf/chart...

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

#66

Post by AndrewKemendo »

wiz21c wrote: post #58
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 ?

That is correct.

Well documented and the Princeton oligarchy study [0] cemented what left wing authors have pointed out for decades.

[0] https://www.bbc.com/news/blogs-echochambers-27074746.amp

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

#67

Post by paxys »

criddell wrote: post #43

Stock returns grow because that's where people and institutions put their money. If stock return growth slows (assuming they aren't talking only about dividends), that means either there's less money in general or it's being parked elsewhere. Which is it? Or do I misunderstand what stock growth is?

The two aren't conflicting ideas. Stock returns are directly tied to dividends and buybacks and indirectly tied to profits and overall company performance. If I think a company isn't returning enough, I'll invest my money elsewhere, and its share price will go down. If I think the stock market isn't returning enough, I'll invest my money in bonds or commodities or foreign countries or Bitcoin or cash under my mattress, and the entire market will go down.

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

#68

Post by delfinom »

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.

Yep.

But I'm so extremely skeptical the "your 401k will always go up by 10%" argument is going to continue to hold for more decades.

Eventually the blood they are squeezing out from companies and consumers will run out...

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

#69

Post by nine_k »

VirusNewbie wrote: post #3
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…

well, they're looking at earnings growth, not profit margins. You could have a company that increases profitability YoY and not grow revenue as well. It's less typical, but certainly possible with technology companies. I think this paper misses that fact.

This is fair. But the theoretical maximum of profitability is 100% of revenue. A company that increased their revenue 10x while keeping the same 10% profit margin (both numbers quite normal) achieved the same profit as if it kept the revenue the same and grew profitability to 100% (pure fantasy).

Also, larger streams of money create the economic multiplier effect.

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

#70

Post by moffkalast »

jeffreyrogers wrote: post #61
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.

The problem with this theory is that by most metrics the middle class in America is doing very well. Homeownership rates are high (significantly higher than Europe), incomes are higher (again, median income in the US significantly higher than even wealthy European countries like Germany), and consumption of things like cars and other manufactured goods is higher than ever.

> Homeownership rates are high (significantly higher than Europe)

What's your data source for that if you recall, just curious?

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