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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)

#81

Post by kgwgk »

nemo44x wrote: post #73
paxys wrote: post #41

Earlier quoted context omitted.

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.

> returns should continue to outpace typical zero risk interest. In essence if you believe the stock market will fail to exhibit growth

Who are you arguing against? The paper linked talks about "significantly lower profit growth and stock returns in the future" not about decreasing earnings and negative returns.

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

#82

Post by [deleted] »

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.

[deleted]

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

#83

Post by kbolino »

joejohnson wrote: post #51
SoftTalker wrote: post #45

Earlier quoted context omitted.

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.

Traditional pensions are fundamentally unsustainable endeavors under modern demographics. You cannot pay decent benefits to a growing retired population while collecting reasonable dues from a shrinking working population. As we've seen, all retirement funds, even the remaining pensions, have largely switched their investments to the stock and bond markets in the vain hope that this fundamental conundrum will be solved through moonshots and financial tricks. The 401(k) is just one piece of a much bigger puzzle.

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

#84

Post by n4r9 »

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.

From a UK perspective, the problem with this comparison is that a) our businesses are also going through this "financialisation", and b) homeownership is very dependent on how much space and political impetus you have to build new homes.

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

#86

Post by advael »

This seems like an overall good thing, since a lot of the effect of these essentially artificially inflated growth numbers has been investors' expectations becoming tied to an unsustainable and unrealistic expectation of growth year over year, and this has a myriad of downstream negative consequences for the actual operation of businesses, which has in turn wreaked havoc on the real economy. Maybe this can trigger a sort of reset of those expectations

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

#87

Post by tway_GdBRwW »

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…

You are correct that even if the US stock market flatlines for the next 20 years, there will be individual companies which do extremely well, and others which die.

That's not what this article is about. The article is about average corporate profits in the current-to-the-point-in-time largest US companies. And using the SP500 allows the analysis to be consistent even as the mix of the SP500 changes.

And no, changing the mix does not guarantee that the index increases in value over time. Plenty of periods of 10 years or more where the SP500 flatlined. Also, economies in other countries have extended periods where the index of their top companies flatlined.

Further, the explosive growth which you hope to find is generally not in the SP500 companies. The explosive growth is what puts a company INTO the SP500.

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

#88

Post by julienchastang »

joejohnson wrote: post #51
SoftTalker wrote: post #45

Earlier quoted context omitted.

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.

I don't have the references on my finger tips, but basically I recall 401ks to be a bad deal for most employees because of mismanagement by the account holder, high fees, ill timed trades, etc. A few 401k (or 403b) holders have done very well, however, if their plans offered low-cost index funds, contributed regularly and avoided moving money around at the wrong time or at all.

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

#89

Post by moffkalast »

n4r9 wrote: post #80
moffkalast wrote: post #70

Earlier quoted context omitted.

> 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.

That covid spike in 2020 is pretty interesting. Probably the percentage of people that rent something close to their workplace and could move home when WFH became a thing.

> The homeownership rate is the proportion of households that is owner-occupied.

I suppose there probably aren't better metrics available, but someone who lives in a rented out penthouse that's being financed by owning 20 rented out apartments wouldn't show up as a homeowner under this which is hilarious.

From what I can find [0] homeownership rates in the EU are typically north of 70%, and up to to 90% in some countries. Germany seems to be a real outlier at only 50%.

[0] https://ec.europa.eu/eurostat/cache/digpub/housing/bloc-1a.h....

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

#90

Post by gizmo »

delfinom wrote: post #68
SoftTalker wrote: post #45

Earlier quoted context omitted.

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...

If the US economy keeps growing then American businesses will do well and the stock market will reflect that. It’s hard to image scenarios where the American economy shrinks while other countries have growing prosperity.
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