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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)

#71

Post by delfinom »

Damogran6 wrote: post #55
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.

Heh, we (a manufacturing facility of specialized devices), just got acquired by a public company.

Due to the utter hell it's already been for meeting accounting standards they need for their financial disclosures like inventory count of fucking 1 cent screws in the warehouse needing to be perfect. Even the engineering staff had to be on hand to take part in warehouse recounts for the auditors.

The heads are already talking of cutting the entire 500 person manufacturing staff and outsourcing the manufacturing. Just because the accounting requirements are huge to run your own manufacturing as a public company.

It's easier for a public company to just outsource anything with annoying requirements to a private company who can handwave behind some paperwork.

Public companies are one reason manufacturing in the US died.

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

#72

Post by m0llusk »

This fits well with some of what Ray Dalio has been saying. The are business cycles and also cycles of those business cycles. At this time we appear to be in a long term transition downward following a long period of relatively strong upsides.

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

#73

Post by nemo44x »

paxys wrote: post #41
nemo44x wrote: post #4

I could be mistaken but using the S&P500 index might be slightly problematic in that the companies that compose this index change all the time. This almost guarantees that the index increases in value over time as high performers are added and low performers are removed. There is an upward bias. I don't doubt that overall, on average, much growth has come from a 40 year decline in interest rates and a consistent lowe…

The companies that compose the entire stock market also change all the time, and follow the same pattern (winners rise, losers go bankrupt). So the S&P 500 is still a good benchmark of overall stock market performance.

So as long as innovation is outgrowing stagnation then returns should continue to outpace typical zero risk interest. In essence if you believe the stock market will fail to exhibit growth you’re betting against technological progress and productivity gains. Bad bet I’d say.

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

#74

Post by tway_GdBRwW »

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…

Passing peak globalization might contribute to declining corporate profits from say 2020 onward; not sure that 2020 is peak globalization, but it is in the ballpark.

Under standard assumptions of a capitalist economy, a new factor such as "technology" should not drive aggregate higher profits. Because companies don't exist in a vaccuum. Technology may allow a company to produce a good for lower cost, but it also allows that company's competitors to produce the similar good for a similarly lower cost.

So of course the article ignored it, it is a non-factor in aggregate corporate profits.

So "technology" can increase aggregate wealth of society (I'm a big fan of indoor plumbing) but it is not going to increase AGGREGATE corporate profits.

Also, it isn't clear how the specific technology you point towards, "automation", is structurally different from earlier technologies such as i.e. railroads or containerized shipping or telephones or ...

Look, obviously only aggregate corporate profits. Some companies made tremendous money off of the "railroad" technology, others went out of business because of it. Likewise, some companies made enormous profits off of computer chips, office software, etc, but the article is about aggregate profits, the economy as a whole, not individual companies.

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

#75

Post by gizmo »

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.

Businesses are primarily valued based on their discounted future cashflows. American businesses are worth much more than their European counterparts because investors (correctly) expect that American businesses will more aggressively seek profit. By contrast, businesses that don’t make money and that are not expected to make (much) money in the future are worth nothing.

In most countries the stock market doesn’t go up. European stock markets needed ~15 years to recover from the 2008 highs because European businesses don’t make money. The Japanese stock market has languished for 30 years. Chinese businesses that get too cocky get the Jack Ma treatment. Turkey and Venezuela had their currencies collapse.

American financialization has its downsides for sure. Some American businesses will do grossly immoral things for profit. But nonetheless having a functioning stock market that rewards good capital allocation is a great thing. Otherwise all money will just end up in real estate and that is way worse for society.

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

#76

Post by GenerWork »

delfinom wrote: post #71
Damogran6 wrote: post #55

Earlier quoted context omitted.

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

Heh, we (a manufacturing facility of specialized devices), just got acquired by a public company. Due to the utter hell it's already been for meeting accounting standards they need for their financial disclosures like inventory count of fucking 1 cent screws in the warehouse needing to be perfect. Even the engineering staff had to be on hand to take part in warehouse recounts for the auditors. The heads are already t…

>Due to the utter hell it's already been for meeting accounting standards they need for their financial disclosures like inventory count of fucking screws in the warehouse needing to be perfect.

Surely this is done on a monthly or quarterly basis instead of a daily basis, right? As in, on day X at XX:XX time you count the screws, and call it good? Or is it more detailed than that?

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

#77

Post by ryandrake »

crystalmeph wrote: post #52
fnordpiglet wrote: post #35

Earlier quoted context omitted.

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…

> 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.

The efficient-market hypothesis would probably disagree. If "paying attention to valuations" ever consistently produces greater returns, then index funds will start weighting their holdings in such a way to capture that value. If it produces greater returns, but not consistently, then we're back to gambling and things like technical analysis and trying to time the market.

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

#78

Post by tway_GdBRwW »

w10-1 wrote: post #18

Data is based only on non-financial firms; I wonder what is the effect size of this exclusion. Economy said to be migrating up the value chain to financial services and using pervasive financial engineering, in GE, pharma, fintech, etc. The prospect of higher interest and more taxes would drive more such engineering. Another question is the stock value loss attributable to dwindling market competition depressing inno…

The exclusion of financial firms is standard in economics literature. The usual reason is that their financials are inverted. The money YOU hold in a bank is an asset to you, the money the BANK holds in the bank is a debt to you.

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

#79

Post by tootie »

jhallenworld wrote: post #44

So can the fed keep interest rates high for long? I think they can't.. because then government debt is too expensive. Pushback from treasury will be intense.

There's no need to. High rates only exist to combat inflation.

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

#80

Post by n4r9 »

moffkalast wrote: post #70
jeffreyrogers wrote: post #61

Earlier quoted context omitted.

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?

This dataset suggests that it's around 65.7%, higher than the 62.9% in 1965 but lower than the 2004 peak of 69.2%: https://fred.stlouisfed.org/series/RHORUSQ156N .

Not sure that "consumption of manufactured goods" is a particularly good metric for measuring wellbeing, though.

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