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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"?

#121

Post by jonnycoder »

ej3 wrote: post #109
abakker wrote: post #63

Earlier quoted context omitted.

Everyone always seems to knee-jerk forget that corporations are employers...the economy is run for people. People work for companies. Companies compete, and the financial gymnastics they do to get there is done by people also. Companies are not sentient. (you could argue that they have some meta-sentience, but it is pretty unspecific)

Honestly I've always shared a perspective much like this until yesterday someone mentioned that through the stimulus (I'm not sure of the figures, but what I roughly recall is) each citizen gets $1200 they're then taxed on, and companies get the balance as an interest free loan. If the balance of the stimulus had been simply evenly distributed to individuals, everyone would have received nearly $10,000. I can't imagi…

Jordan Peterson makes a clear point about how the right is for stable hierarchies but they can destabilize and become corrupt, and that's where the left comes in to balance them. Wanting to see the best doctor if you get cancer or seeking out the best construction worker to remodel your kitchen IS a hierarchy and it's a good thing.

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

#122

Post by riffraff »

H8crilA wrote: post #90
zxcb1 wrote: post #53

Earlier quoted context omitted.

It wont, they just showed that they rather let the system explode than implode; the balance, proper self-organization, invisible hand etc, was lost ten years ago

Sadly, I believe you're right, and this scares the shit out of me. To put it bluntly - we will not have capitalism any more. Capitalism must provision for and handle failures, and this is not currently allowed to happen.

The real question is: was it ever allowed to happen? There have been bailouts in some form since forever, it seems.

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

#123

Post by H8crilA »

ksdale wrote: post #111
H8crilA wrote: post #98

Earlier quoted context omitted.

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.

If, over the long term, CAPEX spendings do not produce profits, it means that the purchased assets did not produce enough payoff to compensate for their depreciation charges. You could argue with the accounting depreciation rules (i.e. how much needs to be written off per year, i.e. you think the asset is longer lived than the accounting rules say), but the general idea stands - it is a sign of bad capital allocation.

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

#125

Post by jki275 »

vzidex wrote: post #124
jki275 wrote: post #87

Earlier quoted context omitted.

Ah the misguided enthusiasm of youth. You'll grow up, don't worry. It will amaze you how much smarter your "boomer" parents get as you get older.

[flagged]

[flagged]

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

#126

Post by timlangeman »

skrebbel wrote: post #68
timlangeman wrote: post #47

Earlier quoted context omitted.

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?

When you say profit growth was flat, that means that profit grew linearly, correct? If true then that's pretty impressive and possibly much better than what the markets ~10 years ago expected?

Sorry, to clarify, their profit hasn't been growing.

Since 2014, Profit (before taxes) has been roughly $2.2 trillion every year.

https://fred.stlouisfed.org/graph/?g=qx3r

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

#127

Post by lotsofpulp »

kaesar14 wrote: post #35
daxorid wrote: post #22

Earlier quoted context omitted.

Some of your gripes are valid, but: > absurd cost of living in major metropolitan areas I fail to see how this is the Boomers' fault. Cosmopolitan urban life is a choice, often fiercely defended by Millenials on account of access to "culture", which frequently boils down to a wide diversity of differently-decorated venues in which to get drunk. Sure, suburban life is boring, and living in the country is hard. But it'…

It's not access to culture, it's access to job opportunities and avoiding a commute on highways absolutely clogged to the brim with commuters. Boomers get the blame for capturing regulatory agencies in zoning and housing construction and preventing growth in cities in like SF.

I don’t think non Boomers are any better about it. When push comes to shove, everyone wants their kids to go to school with other kids whose parents earn as much or more, so the situation will tend to non dense housing as long as there is a wide wealth/inequality gap.

The root cause is technology obviating many jobs and letting labor from around the world compete with the same labor in the US.

Obviously if middle class people live like kings in the US compared to 90% of the world where people don’t have single family homes with garages and two cars, then there exists a tremendous arbitrage opportunity which will have to be taken advantage of if a business/country wants to remain competitive globally.

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

#128

Post by alexpetralia »

vimota wrote: post #57
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…

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.

It is not "unproductive" from the perspective of the economy, but it is "unproductive" (i.e. low-returning) from the perspective of shareholders. We would not expect to see share prices rising if corporate profits in aggregate are not rising (unless there is some financial engineering going on).

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

#129

Post by otoburb »

H8crilA wrote: post #123
ksdale wrote: post #111

Earlier quoted context omitted.

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

If, over the long term, CAPEX spendings do not produce profits, it means that the purchased assets did not produce enough payoff to compensate for their depreciation charges. You could argue with the accounting depreciation rules (i.e. how much needs to be written off per year, i.e. you think the asset is longer lived than the accounting rules say), but the general idea stands - it is a sign of bad capital allocation…

>>If, over the long term, CAPEX spendings do not produce profits, it means that the purchased assets did not produce enough payoff to compensate for their depreciation charges.

Even if CAPEX generates profits, if the returns were lower than your capital cost then company would have been better off not investing and returning that instead to shareholders.

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

#130

Post by adwn »

JackFr wrote: post #82
Enginerrrd wrote: post #66

Earlier quoted context omitted.

My guess is that the answer to that is cheap debt from the fed keeping interest rates so low for so long. The stocks had value beyond what you'd expect from P/E ratiosand assets alone because there was added future value in the form of anticipated stock buy backs.

If debt is that cheap it would be irresponsible to finance the firm with equity.

> If debt is that cheap it would be irresponsible to finance the firm with equity.

Why?

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