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Was corporate profit growth a bubble inflated by "financial engineering"?

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Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#111

Post by ksdale »

H8crilA wrote: post #98
vimota wrote: post #57

Earlier quoted context omitted.

I thought the same, and had to ask some friends to provide another point of view: If a company like amazon generates very little corporate profit, is that unproductive growth? Aggregate corporate profits are not the only stat that matters when discussing economic growth/value.

Amazon is truly exceptional, do not make a rule out of it. Bezos is kinda like Buffett, in their own league of master capital allocators. For example, Amazon got a lot of financial leverage on the "float" between credit card payments and sending the money to merchants. Again, kind of similar to Berkshire which is leveraged on the insurance "float". Also, heavy CAPEX or any other form of internal reinvestment does not…

Heavy CAPEX doesn't require no profits, but it can easily result in that.

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#112

Post by raincom »

timlangeman wrote: post #47
LeoTinnitus wrote: post #6

It's certainly more nuanced than that. However, it does point out the fact that corporations focus too much on shareholder value as opposed to just making a good business system...except for the major players that is. These the so called "too big to fail" types of companies which borderline monopolize market sectors like Amazon and Walmart. But they don't care during recessions because they're fine. They essentially…

The first point I make is that profit growth has been flat since ~2014 but the stock market has gone up quite a bit. My question is: Why had the stock market continued to go up despite flat profits?

'flat' only if you see through the shenanigans; otherwise, EPS (earnings per share) have increased, by reducing the outstanding shares.

When interest rates are low, firms can finance to buy back. Not only that, investors shift their investments to stocks, instead of bonds. Two forces are at work to pump stocks, both forces are products of low interest rates.

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#113

Post by lotsofpulp »

spamizbad wrote: post #71
kaesar14 wrote: post #7

I find this scary and telling. "It is too early to say where the bottom is to this recession, but we have reason to believe the Millennials and Generation X do not have the resources to purchase the stock that Baby Boomers want to sell at prior market highs. With Corporate profit growth unmasked and the Baby Boomer’s transition into retirement, it seems unlikely that stocks will make a quick return to their prior lev…

Well fear not: Boomer private retirement accounts don't hold most of the stocks. What's really going to be challenging for capitalists is losing the whole "It's good for your 401K!" justification when nobody actually owns enough stock to care. Only 45% of millennials have retirement accounts and only 33% of millennials have one they are actively contributing to[1]. The median balance also shows them getting a late st…

Defined benefit pensions for government employees are invested in the market too, and everyone is exposed to that risk by way of being subject to taxes.

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#114

Post by dsfyu404ed »

skrebbel wrote: post #56
LeoTinnitus wrote: post #6

It's certainly more nuanced than that. However, it does point out the fact that corporations focus too much on shareholder value as opposed to just making a good business system...except for the major players that is. These the so called "too big to fail" types of companies which borderline monopolize market sectors like Amazon and Walmart. But they don't care during recessions because they're fine. They essentially…

> They essentially are the government as they have a larger impact on your daily life than the actual government! Even if that were true, "the organization that has the biggest impact on your daily lives" is a weird definition of "government".

Just to further highlight the lunacy of that definition, most people's "government" is their employer if you define government in that manner.

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#115

Post by salawat »

francisofascii wrote: post #55
LatteLazy wrote: post #37

One man's bubble is another man's under valuation. Big moves when there is big news (like a global pandemic say) are normal events. The thing I find concerning is why the FED are "intervening". Dumping cash made sense during a cash shortage. But when there are actual, real, concerns about the future (coronavirus), price falls are perfectly correct. They don't need "fixing". Happy to be corrected if anyone knows?

You might be right, but this sounds like Austrian School policy thinking after the crash of 1929. That depressions are good in the long run, bankruptcies are fine, the economy will self correct, etc. https://en.wikipedia.org/wiki/Great_Depression#Common_positi...

You can't really deny that ABCT hasn't been accurate in predicting the results of ongoing QE.

I get mainstream econ looks down on it, but given the fact sticking strictly to Keynesian thinking has led to businesses being incentivized to create faulty product (Boeing), committing outright fraud (Wells Fargo), causing widespread destruction through abdication of due diligence (PG&E), exploiting addictive chemicals for business growth and engaging in unscrupulous price gouging (Shkreli, Pharma st al), and our current economic powerhouses are increasingly centered around consumer finacialization (every bloody major tech company), and for God's sake, Juicero happened; I'm honestly curious if the Austrian's might not be on to something.

Maybe the market does need to crash down to the basics. I just don't know if there is really a way for that to happen at this point given how capital is so damn centralized right now.

The problem is I just don't think it would be politically possible in the slightest to actually just sit back and hands off; and even if someone were that bold, they'd basically have just proven that there is no reason for them to exist as an institution anyway.

Which I don't necessarily think is an inconceivable state of affairs, but I don't see the economists of the world throwing in the towel and admitting that willingly.

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#116

Post by alexpetralia »

pfraze wrote: post #107
H8crilA wrote: post #42

Yes. Aggregate corporate profits have not gone up at all: https://fred.stlouisfed.org/series/A053RC1Q027SBEA There's a long way to go down to normalize this situation. I'm not saying this will happen, but the downside potential is enormous. Also, don't forget about the 50% of US GDP ($11T) that have been loaded into US capital markets (both debt and equity) by foreigners. This is also hugely out of balance: https://f…

If we assume that corporate value is relatively unchanged from 2014 and then assume that the government bails out the companies by paying off the debt, then the stock market's growth from 2014 would be a form of inflation, wouldn't it?

Yes, asset inflation. Which we've seen (in corporate & startup valuations). We have not seen similar inflation of goods in the wider economy (except real estate, health care and higher education).

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#117

Post by vzidex »

Ididntdothis wrote: post #106
vzidex wrote: post #41

Earlier quoted context omitted.

This is a good point, but I've been getting the feeling that the working class is getting more and more fed up with our conditions as we're squeezed for every last dollar of surplus value. At the end of the day "the people in power" have power because the masses allow them to. If enough people refuse to participate in the system then the system will fall apart - e.g. the state only has the capacity to process so many…

Remember this joke? ‘A banker, a worker, and an immigrant are sitting at a table with 20 cookies. ‘The banker takes 19 cookies and warns the worker: “Watch out, the immigrant is going to take your cookie away.”’ If the ruling class plays it right the working class will go after each other instead of the ruling class. And so far they seem to do really well.

Hah! I've never actually heard that joke but it's a good one.

And yes, that is definitely what they'll do - every time something major happens in our society I've observed the mass media following the playbook from Chomsky's "Manufacturing Consent" almost exactly.

That being said, every "big event" is an opportunity for mass radicalization of the working class and these "big events" are happening more and more often. It's like the quote from the IRA: "We only have to be lucky once. You will have to be lucky always".

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#118

Post by adwn »

eanzenberg wrote: post #69
supercanuck wrote: post #48

Earlier quoted context omitted.

Are you sure about that? All the people in your town would also have to shop at those alternatives as well. Do you think that there is enough inventory and stock to go around? Would those alternatives replenish their inventory in a timely fashion? Would you seek alternatives to your normal shopping? I think people vastly overestimate the capabilities of their local options.

People also vastly underestimate how hard it is to produce commodities. Like, if Amazon disappeared overnight then we'd just all switch to something else and no issues would arise. What nuttiness!

> People also vastly underestimate how hard it is to produce commodities.

Neither Amazon nor Walmart produce those commodities, they distribute them. Sure, there would be some initial issues, but both the remaining distributors as well as the producers would have strong incentives to quickly resolve those issues.

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#119

Post by georgeecollins »

pfraze wrote: post #107
H8crilA wrote: post #42

Yes. Aggregate corporate profits have not gone up at all: https://fred.stlouisfed.org/series/A053RC1Q027SBEA There's a long way to go down to normalize this situation. I'm not saying this will happen, but the downside potential is enormous. Also, don't forget about the 50% of US GDP ($11T) that have been loaded into US capital markets (both debt and equity) by foreigners. This is also hugely out of balance: https://f…

If we assume that corporate value is relatively unchanged from 2014 and then assume that the government bails out the companies by paying off the debt, then the stock market's growth from 2014 would be a form of inflation, wouldn't it?

Not only inflation. Certainly earnings increased in many cases due to tax cuts and tax forgiveness, such as allowing US tech companies to repatriate money at reduced tax rates. If you assume the tax cuts will continue, the stocks are more valuable.

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#120

Post by jimbob45 »

enraged_camel wrote: post #26
jimmaswell wrote: post #17

Earlier quoted context omitted.

> They essentially are the government as they have a larger impact on your daily life than the actual government! Amazon and Wal Mart could disappear overnight and I would just shop elsewhere. Amazon isn't in charge of my water quality or road maintenance.

Keep in mind that over the past couple of decades, Walmart has replaced small mom-and-shops in most towns and small cities. An enormous amount of people in America would be utterly screwed if it went away.

Sounds like a decent reason to nationalize Walmart (other than that their margins are very thin and it’s unlikely anyone could do better)
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